Abstract: This paper examines the effects of targeted credit rationing by banks on firms likely to generate negative externalities. We exploit an initiative of the U.S. Department of Justice, labeled Operation Choke Point, which compelled banks to limit relationships with firms in industries prone to fraud and money laundering. Using supervisory loan-level data, we find that, as intended, targeted banks reduce lending and terminate relationships with affected firms. However, most firms fully substitute credit through non-targeted banks under similar terms. Overall, the performance and investment of these firms remain unchanged, suggesting that targeted credit rationing is widely ineffective in promoting change.
Discussant: Mariassunta Giannetti, Stockholm School of Economics
Abstract: We estimate financial institutions' portfolio tilts that relate to stocks' environmental, social, and governance (ESG) characteristics. In 2021, ESG-related tilts total 6% of the investment industry's assets and average 22% of institutions' total portfolio tilts. ESG tilts are larger for less-volatile stocks and for institutions with smaller size and greater active share, consistent with our theoretical predictions. Significant ESG tilts arise from the choice of stocks held and, especially, the weights on stocks held. The largest institutions tilt increasingly toward green stocks, while other institutions and households tilt increasingly brown. UNPRI signatories and European institutions tilt greener, banks browner.
Discussant: Marcin Kacperczyk, Imperial College London
Matteo Crosignani, Federal Reserve Bank of New York
Abstract: We find that banks differ in their propensity to lend to minorities based on their stakeholders’ aversion to inequality. Using mortgage application data collected under the Home Mortgage Disclosure Act, we document a large and persistent cross-sectional variation in banks’ propensity to lend to minorities. Inequality-averse banks have a higher propensity to lend to borrowers in high- minority areas and, within census tracts, to non-white borrowers compared to other banks. This higher propensity (i) is not explained by selection of applicants, (ii) allows these banks to retain and attract their inequality-averse stakeholders, and (iii) does not predict worse ex-post loan performance.
Abstract: Do political values shape depositor behavior? Exploiting a shock drawing public attention to banks’ financial relationships with the gun industry, I find that banks that lend to the gun industry experience significant decreases in deposit growth. The effect is stronger in counties with more Democrats or higher support for gun control. Anti-gun depositor movements increase funding costs for gun-lending banks and thus reduce their lending business, which coincides with slower growth in gun establishments. Moreover, I find evidence that banks with public anti-gun policies also experience reduced deposit growth, specifically in counties with more Republicans or higher support for gun rights. The findings suggest that political values shape depositor behavior and pose financial risks to bank operations.
Discussant: J Cookson, University of Colorado-Boulder
