As immigrants settled and assimilated, they established accounts and relationships with [Thrift and Community] banks which led to the progression of cross selling financial products to consumers, e.g., loans by the bank. The loans created were through financial intermediation, in which the bank utilized actual funds held, within the institutions deposit accounts, to originated interest bearing [commercial, industrial and consumer] loans. The banks also has a sufficient level of reassurance against the default risk as the real estate loans were collateralized; the borrower pledged the asset as recourse to the lender in the event of default. Community banks also had the flexibility to lend to individuals with less than prime credit worthiness. Subsequently, the banks did not face much competition in creating such loans, which kept the interest rates relatively high (Hubbard & Anthony, 2012).
Enabling the trend away from intra family lending, borrowers were enticed by the ease of access of bank funds. The amount of funds to be borrowed was no longer dependent upon the network of friends and family of the borrower.
Compounding the shift away from intra family lending was the risk of default as it was difficult for personal lenders to collect. Faced with the looming threat of default, juxtaposed to the secure option of bank accounts, stock holdings or business ventures, lenders shifted the focus from that of benevolence to that of yielding returns.
The availability of…