Erica Xuewei Jiang

This paper studies how banks compete amid digital disruption and the resulting distributional effect across consumers. Digital disruption increases the geographic coverage of banking services, bringing new entrants to local markets. However, as digital customers shift from branches to digital services, banks close branches, and the remaining branching banks gain market power among non-digital customers that rely on branches. Consequently, digital customers benefit from the intensified bank competition at the cost of non-digital customers who pay higher prices for branch services and face the risk of financial exclusion. We provide empirical evidence by exploiting the staggered expansion of 3G networks, instrumented by regional distribution of lightning strike frequency. Using a structural model, we further quantitatively decompose the benefit and costs of digital disruption resulting from banks' pricing, branching, and entry decisions. The results highlight the role of banks' endogenous responses to digital disruption in widening the gap in access to banking services.

Using property transaction and financing data, we document large cross-sectional differences in how effective houses are as collateral for mortgages. Older and less standardized houses tend to have higher price dispersion, and their appraisal values tend to deviate more from transaction prices. Mortgages collateralized by these houses are more likely to be rejected, have lower loan-to-price ratios, and higher risk-adjusted cost menu. This effect is stronger for home buyers with higher default risk, consistent with the collateral channel. We quantify the effect on homeownership gap using a life-cycle model with collateral constraints. We discuss the implications of our findings for FHA mortgage program, the shift from human to automated appraisals, and urban policies.

We study the suspension of household debt payments (debt forbearance) during the COVID-19 pandemic. Between March 2020 and May 2021, more than 70 million consumers with loans worth $2.3 trillion entered forbearance, missing $86 billion of their payments. This debt relief can help explain the absence of consumer defaults relative to the evolution of economic fundamentals. Borrowers’ self-selection is a powerful force in determining forbearance rates: relief flows to households suffering pandemic induced shocks who would have otherwise faced debt distress. Moreover, 55% of forbearance is provided to less creditworthy borrowers with above median income and higher debt balances – i.e., those excluded from income-based policies, such as the stimulus check program. A fifth of borrowers in forbearance continued making full payments, suggesting that forbearance acts as a credit line. About 60% of borrowers already exited forbearance while more financially vulnerable and lower income borrowers are still in forbearance with an accumulated debt overhang of about $60 billion Exploiting a discontinuity in mortgage eligibility under the CARES Act we estimate that implicit government debt relief subsidies increase the rate of forbearance by about a third. Government relief is provided through private intermediaries, with shadow banks less likely to provide forbearance than traditional banks.

Shadow banks service a substantial portion of household debt in the US including half of residential mortgages. They also funded and implemented a large portion of the CARES Act driven debt relief. Despite uniform policy and similar borrowers, shadow banks offered debt forbearance at significantly lower (27%) rate compared to traditional banks. Better capitalized shadow banks offered forbearance at a much higher rate and those with larger exposure to servicing related liquidity shocks reduced this exposure by selling their servicing rights. We highlight fragility of shadow bank servicing during downturns that can impede the pass-through of debt relief to households.