Branch Banking and Institutional Racism in the U.S. Banking Industry

Abstract

Studies abound documenting racial disparity in mortgage lending, yet lenders insist that they do not use race in their decision-making process, but rather rely upon credit scores as an objective financial predictor of an applicant's ability to repay a loan. However, I suggest that because on average blacks and Latinos have lower credit scores than whites (Sheila D. Ards and Samuel L. Myers, Jr. 2001; Stephen Ross and John Yinger 2002; Federal Reserve Board 2007), using credit scores as a primary determinant of loan approval results in an increased likelihood of minorities having loans denied, an example of institutional racism. I suggest and find empirical support for the suggestion that this type of institutional racism has been exacerbated by the U.S. banking industry's move from unit banking to branch banking.