The Life Cycle of a Bank Enforcement Action and Its Impact on Minority Lending

52 Pages Posted: 20 Apr 2021 Last revised: 21 Sep 2021

See all articles by Byeongchan An

Byeongchan An

University of Utah, David Eccles School of Business, Students

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School

Anya Kleymenova

Board of Governors of the Federal Reserve System

Rimmy E. Tomy

University of Chicago

Date Written: September 17, 2021

Abstract

This paper studies the role banking supervision plays in improving access to credit for minorities by investigating how enforcement decisions and orders (EDOs) affect bank borrower base. Despite declines in most component portfolios, we nd that bank-level residential mortgage portfolios remain relatively unchanged after an EDO. We document significant changes in the underlying demographic mix of residential mortgage borrowers: after an EDO's termination, banks significantly increase residential mortgage lending to minorities. EDO banks are also less likely to deny loans to minority borrowers, and their reasons for loan denial change. We propose several mechanisms to explain why lending to minorities might increase after an EDO and nd evidence consistent with EDO banks' improvements due to the enforcement process expanding lending to minorities, as well as banks catering to regulators after EDO termination.

Keywords: Banking, Competition, Deposits, Disclosure, Discrimination, Enforcement actions, Mortgage lending

JEL Classification: G21, G28, G38

Suggested Citation

An, Byeongchan and Bushman, Robert M. and Kleymenova, Anya V. and Tomy, Rimmy, The Life Cycle of a Bank Enforcement Action and Its Impact on Minority Lending (September 17, 2021). Chicago Booth Research Paper No. 21-12, Fama-Miller Working Paper, Available at SSRN: https://ssrn.com/abstract=3825119 or http://dx.doi.org/10.2139/ssrn.3825119

Byeongchan An

University of Utah, David Eccles School of Business, Students ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-9809 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/bushmanr/

Anya V. Kleymenova

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2662 (Phone)

Rimmy Tomy (Contact Author)

University of Chicago ( email )

Booth School of Business
5807 S Woodlawn Ave
Chicago, IL 60637
United States

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