On the Role of Information, In-person contact, and Relationship Mitigating Discrimination in Bank Lending
Speaker
Abstract
| We use a unique proprietary database of consumer loan applications to all savings banks in Germany to analyze discrimination in retail bank lending. We find evidence that foreigners are discriminated against, and the degree of discrimination seems higher for applicants who are more dissimilar, i.e., EU versus non-EU applicants. We investigate the mechanisms that help mitigate discrimination. We find banks’ collection of additional verifiable hard information in scorecards helps to reduce discrimination. We find another important mechanism for alleviating discrimination is the bank-depositor relationship channel. Interestingly, the effect of relationships is not monotonic - even relatively short bank-depositor relationships of up to two years significantly reduce discrimination. Finally, we find no evidence of discrimination in online lending which has the same scorecard process, but no in-person contacts. Our results shed light on mechanisms that help mitigate discrimination. |
| Contact information: |
| Viorel Roscovan |
