Banking Reforms, Credit Access, and Resolution of Financial Distress

54 Pages Posted: 14 Feb 2017 Last revised: 30 Sep 2019

See all articles by Chintal A. Desai

Chintal A. Desai

Virginia Commonwealth University (VCU)

David H. Downs

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate; The Kornblau Institute

Date Written: September 14, 2019

Abstract

The removal of geographic restrictions on banking activities can provide credit to a larger population. Economic hardships, however, can force some of the borrowers to default on their loans and file for bankruptcy to overcome financial distress. Using data aggregated at the US county-level, we show that allowing an in-state bank to open branches anywhere within that state (intrastate branching) increases Chapter 13 filings (debt repayment from future income). An increase in mortgage supply after intrastate branching helps explain the rise in Chapter 13 filings, suggesting that homeowners file under Chapter 13 as an effort to save their houses. In contrast to the existing literature that is based on state-level data, the effect of interstate banking on Chapter 7 filings (debt repayment from asset liquidation) is insignificant.

Keywords: Law and Finance; Bank Deregulation; Mortgage Supply; Personal Bankruptcy; Household Finance

JEL Classification: G28; G21; D12; D14; K35

Suggested Citation

Desai, Chintal and Downs, David H., Banking Reforms, Credit Access, and Resolution of Financial Distress (September 14, 2019). Available at SSRN: https://ssrn.com/abstract=2916407 or http://dx.doi.org/10.2139/ssrn.2916407

Chintal Desai (Contact Author)

Virginia Commonwealth University (VCU) ( email )

1015 Floyd Avenue
Richmond, VA 23284
United States

David H. Downs

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate ( email )

Richmond, VA 23284-4000
United States

The Kornblau Institute ( email )

Richmond, VA 23284-4000
United States

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