Bank Branch Presence and Access to Credit in Low- to Moderate-Income Neighborhoods


  • 1

    Estimates for these types of consumers vary between 10 and 22 million households (“Innovations in Personal Finance for the Unbanked: Emerging Practices from the Field,” Fannie Mae Foundation Case Studies, 2003).

  • I would like to thank two anonymous referees and the editor Deborah Lucas for many helpful comments and suggestions. All errors are mine.

  • The views stated herein are not necessarily those of the Federal Reserve Bank of Cleveland or of the Federal Reserve System.


Banks specialize in lending to informationally opaque borrowers by collecting soft information about them. Some researchers claim that this process requires a physical presence in the market to lower information collection costs. This paper provides evidence in support of this argument in the mortgage market for low-income borrowers whose access to credit is limited by their inadequate credit histories. Mortgage originations increase and interest spreads decline when there is a bank branch located in a low- to moderate-income neighborhood.