Banking Deregulation and Discrimination in Mortgage Lending

Abstract

This paper examines how interstate banking deregulation affects mortgage lending to minorities. I find that the mortgage approval rates for African Americans, compared with other borrowers, decrease after interstate banking deregulation. I also find that the effect is only present in out-of-state banks, but not in in-state banks or non-bank lenders, suggesting that the effect is driven by the strengthening of the bank balance sheet after deregulation, but not by the increased competition. Further analyses show that the effect is stronger for banks with weaker balance sheets before deregulation.

Keywords: Lending Discrimination, HMDA, Banking Deregulation

JEL Classification: G21, G28, J16