Do Black-Owned Banks Discriminate Against Black Borrowers? (2024)

See all articles by Harold A. Black

Harold A. Black

University of Tennessee, Knoxville - Department of Finance

M. Cary Collins

The University of Tennessee

Ken B. Cyree

University of Mississippi - School of Business Administration

Abstract

A matched sample of black-owned and white-owned banks is tested for lending discrimination based on race. A simple regulatory model and an enhanced regulatory model are applied to conventional mortgage loan applications in 1992 and 1993. The regulatory model uses readily available data to bank monitoring agencies and is most often used by regulators to test for discrimination. The enhanced regulatory model adds bank performance and portfolio data as well as demographic information about the census tract where the property is located. While both ownership groups are found to possibly discriminate, black-owned banks have significantly higher rejection rates for black applicants. The enhanced model suggests that only black-owned banks use applicant race in the mortgage credit decision when demographic, neighborhood, and bank-specific characteristics are added. In addition, when borrower race is controlled and bank ownership examined, black-owned banks are more likely than white-owned banks to reject similarly situated black applicants. The results provide further evidence of significant weaknesses in examining discrimination in single-equation models.