Capital Markets, CDFIs, and Organizational Credit Risk

Major technological advances have also made the banking industry more efficient and expanded the markets they can economically serve, increasing access to banking services for LMI (low and moderate income) individuals and small businesses. ATMs are now ubiquitous, and online banking allows account access from most any computer. Innovations in information technology have made highly scalable origination production and servicing platforms both feasible and cost effective. Automated underwriting and credit scoring have led to faster decisions and better and less costly risk assessment, which in turn has enabled banks to make smaller loans and to vary pricing based on the riskiness of the borrower. (Although the recent credit crunch may be forcing a recalibration of the risk inherent in lending to a borrower with a given set of characteristics, these systems offer a way to array borrowers along a risk continuum and vary pricing accordingly.)