June 2022

Social Externalities of Bank Enforcement Actions: The Case of Minority Lending

Byeongchan An, Robert Bushman, Anya Kleymenova, and Rimmy E. Tomy

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 the bank borrower base. We find that, after an EDO's termination, banks significantly increase residential mortgage lending to minorities, relative to white borrowers, even when the enforcement order is not issued for violations of fair lending laws. Our findings suggest that improvements in banks' internal credit assessment and compliance due to the enforcement process are associated with the expansion in lending to minority borrowers. Our findings highlight the indirect social benefits of bank enforcement and supervision.

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

DOI: https://doi.org/10.17016/FEDS.2022.036

PDF: Full Paper

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Last Update: June 02, 2022