Comparing lending decisions of minority-owned and White-owned banks: Is there discrimination in mortgage lending?

A recent paper by Black, Collins and Cyree [J. Financ. Serv. Res. 11 (1997) 189.] attempted to determine if Black-owned banks discriminated against Black applicants for mortgage credit. They concluded that Black applicants were more likely to be rejected than White applicants when applying for mortgage credit at a Black-owned bank. However, the use of the Metropolitan Statistical Area (MSA) as the geographic delineation from which minority-owned and non-minority-owned banks are compared may not provide a narrowly defined market from which an accurate comparison can be made. Here, the zip code cluster technique developed by Clair [Econ. Rev. (1988) 11.] is used to control for differences in applicant base that may result when using a broader geographic definition such as an MSA. The results reported in this study show that contrary to the results of Black, Collins and Cyree, Black-owned banks are not statistically more likely to reject Black applicants. The study also considers Asian-owned and Hispanic-owned banks. The results show that Asian-owned banks are equally as likely to provide a mortgage to Asian applicants, while Hispanic applicants are more likely to receive a mortgage from a Hispanic-owned bank.