Do Fintech Lenders Amplify Monetary Policy Transmission? (job market paper)

Abstract

I find that fintech (onlined-based non-bank) lenders in residential mortgage markets amplify the transmission of monetary policy. In a difference-in-differences setting, I show that when mortgage rates fall, mortgage refinance activity is stronger in counties with higher fintech lender presence (as measured by either the number of active fintech lenders or their local market shares). Local retail expenditures and small business investment also increase in high-fintech jurisdictions. To address endogeneity concerns, I exploit the strictness of state-level regulations for certifying new non-bank mortgage lenders, which I show affects the rate of fintech entry into various states. Using these state-level differences, I compare adjacent counties on opposite sides of state borders with differential numbers of licensed fintech lenders, and show that there is a discontinuous positive jump in refinancing activity in states with greater numbers of fintech firms. Finally, I find evidence that fintech monetary transmission is related to its ability to overcome credit frictions in underserved areas: when rates fall, the refinance and consumption growth effects of fintech lending are strongest in counties with large racial/ethnic minority communities, low population density, and few physical bank branches.