07.01.2025"Monetary Policy and Mortgage Markets"

Manish Gupta is an Assistant Professor of Finance at Nottingham University Business School. He completed his PhD in our Department of Finance and visited us as an academic guest by invitation of Steven Ongena.

Dear Prof. Gupta, it is a pleasure to meet you. During your recent visit to our department as an academic guest of Steven Ongena, he introduced us, which piqued our curiosity. We would like to ask you a few questions.

First of all, you did your doctorate in our department. What made you choose the University of Zurich back then?

I chose the University of Zurich due to its esteemed faculty and rigorous curriculum. Reflecting on my decision, I believe it was a sound choice, as it ultimately led to securing an academic position upon completing my PhD.

Together with Steven Ongena, you do a lot of research on lending and loans. What sparked your interest in this topic?

While working in mortgage markets, I realized that a comprehensive understanding of banking was essential to grasp the intricacies of mortgage markets. Steven had also begun working in mortgage markets, making it a natural collaboration.

How have bank lending patterns changed in the last decades?

One significant change I've observed in mortgage markets is the emergence of nonbanks, particularly Fintech lenders. This trend is likely to become even more prominent. Another notable change is the substantial increase in regulatory costs following the Great Financial Crisis. For instance, privacy laws such as General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA) have become increasingly relevant.

What are the differences in lending behavior between banks and non-bank lenders?

Financial innovation, such as hard data processing and securitization, has made it convenient for nonbanks to originate loans without having to hold them on their books, by reselling them to investors in secondary markets. One key difference between banks and non-bank lenders is the greater use of technology by non-banks. This can lead to reduced financial intermediation costs, faster processing times, and a minimization of human biases. However, there is a need for greater regulatory oversight of non-bank lending.

Small businesses rely on loans. What is spatial price discrimination and how does it apply in the context of Small Business Administration (SBA) loans?

Spatial price discrimination in small business lending refers to the practice of charging different interest rates or loan terms based on a borrower's geographic location. This discriminatory practice can hinder the ability of small businesses to access affordable credit and grow. Our findings suggest that spatial price discrimination in SBA loans stems from some lenders exploiting their market power.

What are the potential consequences of spatial price discrimination for small businesses seeking loans?

The SBA is a federal agency tasked with ensuring fair lending practices for financially constrained small businesses. The SBA's mission to promote entrepreneurship and job growth would be compromised by spatial price discrimination, as it would limit the success of small businesses in certain regions, with potentially significant spillover effects, such as employment and community development.

Given your findings, what policy recommendations might you suggest to address the issue of spatial price discrimination in SBA loans?

While we currently do not offer policy recommendations in our paper, I believe that greater regulatory oversight of SBA lenders is necessary to ensure compliance with fair lending laws. Encouraging more lenders to participate in the SBA's 7(a) loan program would increase competition and reduce the market power of certain lenders.

Thank you, Professor Gupta for sharing your insights with us.

More information:

Gupta, Manish and Ongena, Steven R. G., Monetary Conditions and Community Redistribution through Mortgage Markets (April 10, 2024). Swiss Finance Institute Research Paper No. 24-28, Available at SSRN: https://ssrn.com/abstract=4800533 or http://dx.doi.org/10.2139/ssrn.4800533