Racial Discrimination in Bank Lending?

Are minority-owned banks more likely to approve applicants for mortgage loans from Latinos and African-Americans than white-owned banks? A study just released by the Rusk Center for Real Estate of the University of Southern California finds that minority applicants with marginal credit records did not fare any better at minority-owned banks than at white-owned banks. Various public policy interest groups are attacking the study.

Dr. Raphael W. Bostic, the author of the study, is currently a USC associate professor, but began the study when working as a senior economist at the Federal Reserve Board in Washington, D.C. His conclusion: "This study shows that either white-owned banks don't have racial biases or that minority-owned banks share the same biases as everybody else." He does not rule out the possibility that individual employees at banks may have racial biases, but his study shows that they are not systemic. In her article in the Wall Street Journal, Queena Sok reports that "The study examined 11,0000 loan applications that were submitted to 273 community banks in about 35 metropolitans areas across the country during 1994 and 1995. Dr. Bostic first identified Asian, American and black-owned banks. He then matched them with white-owned banks that were comparable in size in the same county." He found that black-owned banks rejected 35 percent of the applications from African-Americans, while the white-owned banks turned down only 17 percent of them. Robert Graizda, the head of the GreenLining Institute that addresses housing and lending issues disputes the conclusions, saying that Dr.Bostic's study "goes against the experience of too many groups."