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Bank deregulation and racial inequality in America

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  • Ross Levine
  • Alexey Levkov
  • Yona Rubinstein

Abstract

We use the cross-state, cross-time variation in bank deregulation across the U.S. states to assess how improvements in banking systems affected the labor market opportunities of black workers. Bank deregulation from the 1970s through the 1990s improved bank efficiency, lowered entry barriers facing nonfinancial firms, and intensified competition for labor throughout the economy. Consistent with Becker?s (1957) seminal theory of racial discrimination, we find that deregulation-induced improvements in the banking system boosted blacks?relative wages by facilitating the entry of new firms and reducing the manifestation of racial prejudices in labor markets.

Suggested Citation

  • Ross Levine & Alexey Levkov & Yona Rubinstein, 2012. "Bank deregulation and racial inequality in America," Supervisory Research and Analysis Working Papers RPA 12-5, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbqu:rpa12-5
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    Cited by:

    1. Brown, Sarah & Gray, Daniel & Montagnoli, Alberto, 2019. "Credit supply shocks and household leverage: Evidence from the US banking deregulation," Journal of Financial Stability, Elsevier, vol. 43(C), pages 97-115.
    2. Dougal, Casey & Gao, Pengjie & Mayew, William J. & Parsons, Christopher A., 2019. "What’s in a (school) name? Racial discrimination in higher education bond markets," Journal of Financial Economics, Elsevier, vol. 134(3), pages 570-590.
    3. Janet Gao & Wenting Ma & Qiping Xu, 2023. "Access to Financing and Racial Pay Gap Inside Firms," Working Papers 23-36, Center for Economic Studies, U.S. Census Bureau.
    4. Popov, Alexander & Zaharia, Sonia, 2017. "Credit market competition and the gender gap: evidence from local labor markets," Working Paper Series 2086, European Central Bank.
    5. Ghani,Syed Ejaz & Grover,Arti & Kerr,Sari & Kerr,William Robert, 2016. "Will market competition trump gender discrimination in India ?," Policy Research Working Paper Series 7814, The World Bank.
    6. Emmanuel Carré & Guillaume L’œillet, 2018. "The Literature on the Finance–Growth Nexus in the Aftermath of the Financial Crisis: A Review," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(1), pages 161-180, March.
    7. Popov, Alexander & Zaharia, Sonia, 2019. "Credit market competition and the gender gap in labor force participation: Evidence from local markets," European Economic Review, Elsevier, vol. 115(C), pages 25-59.
    8. Hasan, Iftekhar & Krause, Thomas & Manfredonia, Stefano & Noth, Felix, 2022. "Banking market deregulation and mortality inequality," Bank of Finland Research Discussion Papers 14/2022, Bank of Finland.
    9. Zamir Eyal, 2020. "Refounding Law and Economics: Behavioral Support for the Predictions of Standard Economic Analysis," Review of Law & Economics, De Gruyter, vol. 16(2), pages 1-35, July.
    10. Berger, Allen N. & Molyneux, Phil & Wilson, John O.S., 2020. "Banks and the real economy: An assessment of the research," Journal of Corporate Finance, Elsevier, vol. 62(C).
    11. Jiang, Tianjiao & Levine, Ross & Lin, Chen & Wei, Lai, 2020. "Bank deregulation and corporate risk," Journal of Corporate Finance, Elsevier, vol. 60(C).
    12. Matthias Stefan & Felix Holzmeister & Alexander Müllauer & Michael Kirchler, 2018. "Ethnical discrimination in Europe: Field evidence from the finance industry," PLOS ONE, Public Library of Science, vol. 13(1), pages 1-7, January.
    13. Ọláyínká Oyèkọ́lá, 2021. "Finance and inequality in a panel of US States," Empirical Economics, Springer, vol. 61(5), pages 2739-2795, November.
    14. Taskin, Ahmet Ali & Yaman, Firat, 2023. "The effect of branching deregulation on finance wage premium," FAU Discussion Papers in Economics 08/2023, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    15. Corrado Giulietti & Mirco Tonin & Michael Vlassopoulos, 2015. "Racial Discrimination in Local Public Services: A Field Experiment in the US," Working Papers 080, "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi.
    16. Kandilov, Ivan T. & Leblebicioğlu, Aslı & Petkova, Neviana, 2017. "Cross-border mergers and acquisitions: The importance of local credit and source country finance," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 288-318.
    17. Emmanuel Carré & Guillaume L’Œillet, 2017. "Une revue de la littérature récente sur le nexus finance-croissance après la crise : apports, limites et pistes de recherche," Revue d'économie financière, Association d'économie financière, vol. 0(3), pages 271-290.
    18. Popov, Alexander, 2017. "Evidence on finance and economic growth," Working Paper Series 2115, European Central Bank.
    19. Allen N. Berger & Maryann P. Feldman & W. Scott Langford & Raluca Roman, 2023. ""Let Us Put Our Moneys Together": Minority-Owned Banks and Resilience to Crises," Working Papers 23-13, Federal Reserve Bank of Philadelphia.
    20. Berger, Allen N. & Chen, Ruiyuan (Ryan) & El Ghoul, Sadok & Guedhami, Omrane, 2020. "Who wins and who loses from bank geographic deregulation? Analysis of financially constrained and unconstrained firms," Journal of Corporate Finance, Elsevier, vol. 65(C).
    21. Contreras, Salvador & Ghosh, Amit & Hasan, Iftekhar, 2023. "The effect of bank failures on small business loans and income inequality," Journal of Banking & Finance, Elsevier, vol. 146(C).

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    More about this item

    Keywords

    Banks and banking; Labor market; Wages; Bank competition;
    All these keywords.

    JEL classification:

    • J7 - Labor and Demographic Economics - - Labor Discrimination
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D3 - Microeconomics - - Distribution
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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