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Bros Don’t Let Bros Lend Money

Male bonding between lender and borrower can make for poor banking decisions.

Will pleasant chit-chat with a bank loan officer get you the money you want, or is your borrowing destiny tied only to hard numbers such as your debt-to-income ratio?

That may depend on your gender—and your loan officer’s gender. If you’re both men, then mentioning your hobbies, your neighborhood, your kids—otherwise known as “soft” information—does have an impact. But it turns out that your bro across the desk who pledged the same frat and likes the same bars may eventually rue the day he met you.

Some studies suggest collection of qualitative (soft) information from borrowers about such things as family, friends, and other personal and hard-to-verify tidbits helps reduce the odds of loan default. But it can also backfire, according to the authors of “Making Sense of Soft Information: Interpretation Bias and Ex-Post Lending Outcomes.”

The paper 1 found that “hard” information such as credit scores and debt-to-income levels was interpreted the same way by male and female loan officers. Interpretations diverged, though, when softer information came into the picture, and when the borrower and lender were both male. In that case, the outcome of loans was measurably worse. 

Two years after the loans tracked by the study were originated, data showed the credit outcomes of loans made by men to men, in which soft information was noted, were worse than for women. The outcome, measured by events that include charge-offs and defaults, was 12 percent worse for male borrowers than for women.

The effect didn’t show up with loans when the borrower and lender were of different genders, or were both women. 

“We expected if the borrower and lender were of the same gender, it would mean that they wouldn’t effectively screen the soft information, because they would rely on the common bond as a source of trust,” said co-author Maria Loumioti, a visiting professor at the Massachusetts Institute of Technology’s Sloan School of Management. “If you have some common identity—maybe you come from the same neighborhood, or your kids are at the same school—it may subconsciously make you feel you can trust this person, not because you know something more about them but because you identify yourself through this bond.”

The findings are “consistent with psychological studies that show that, when talking about gender identity, this trust and identification works primarily between men—and not women,” she said.

The paper’s three authors quantified what they called “soft keywords” in employee notes in loan files—words such as “friends,” “hobby,” “education,” “family,” and “children,” as well as words and phrases that captured emotion, such as “overwhelmed,” “frustrated,” and “stress.” One proxy the authors used for measuring the use of soft information was the ratio of such words in notes, relative to the total number of words in a file. 

The authors cite a 2016 study out of the University of Washington that showed men being biased in favor of other men. That study, “Males Underestimate Academic Performance of Their Female Peers in Undergraduate Biology Classrooms” found that, when young male biology undergrads were asked to name their most knowledgeable classmates, men were more likely to choose other men. That was “specifically due to males over-nominating their male peers relative to their performance,” the paper concluded.  

Men also overestimated male grades by 0.57 points on a 4-point grade scale. Women, meanwhile, “nominated equitably based on student performance rather than by gender, suggesting they lacked gender biases in filling out these surveys.”

  1. The study was based on the internal loan reporting system at a federal credit union with about $1.6 billion in assets and 140,000 customers.

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