Bank Public Status and Mortgage Lending Discrimination
47 Pages Posted: 21 Oct 2019 Last revised: 26 May 2021
Date Written: May 6, 2021
Comparing private banks that went public through mergers and acquisitions with similar private banks, we find that going public reduces the mortgage denial rates for African American borrowers by 6.1-6.3 percentage points, which reduces the racial disparity in mortgage approval rates by a third. Our results are not driven by changes in borrower risk characteristics, lender risk preferences, securitization, or increased disclosure requirements. The effect is more pronounced in areas suffering stronger racial biases. Our results suggest that the dispersed ownership can mitigate non-economically motived prejudice of concentrated private ownership and thereby alleviates taste-based discrimination in mortgage lending.
Keywords: Lending Discrimination, Diffuse Ownership, Capital Market
JEL Classification: G0, G21, G28, J16
Suggested Citation: Suggested Citation