Essays in Banking and Consumer Finance

Abstract

My dissertation consists of two chapters. In the first chapter, I show that the growing trend in financial services digitalization has introduced a new dimension along which commercial banks compete, with consequences for the local economy. Small community banks (SCBs) are slow to implement mobile technologies and lose deposits to larger, better-digitalized banks following mobile infrastructure improvements. This dynamic negatively affects their small business lending, for they have historically relied on information and liquidity synergies with deposits to maintain their competitive advantage in such markets. Larger banks and FinTech firms prove to be imperfect substitutes in this setting, and the local economy benefits less from digitalization in areas where SCBs had an important presence before its advent. The second chapter, co-authored with Prof. Rawley Heimer, focuses on the outcomes of consumers' efforts to achieve restitution for disputed financial services. We find that complaints filed with the Consumer Financial Protection Bureau (CFPB) from low-income and Black zip codes are 30% less likely to be resolved with the consumer receiving financial restitution. The gap in financial restitution was scarcely present under the Obama administration, but grew substantially under the Trump administration. We attribute the change in financial restitution under different political regimes to companies anticipating a more industry-friendly CFPB, as well as to the more industry-friendly leadership of the CFPB achieving less financial restitution for low-income and Black filers. The financial restitution gap cannot be explained by differences in product usage nor the quality of complaints, which we measure using textual analysis.