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Discrimination in lending? Evidence from the Paycheck Protection Program.
Rachel Atkins1, Lisa Cook2, Robert Seamans1
1NYU Stern School of Business, New York City, USA.
Small Business Economics
|April 16, 2024
Summary
Black-owned businesses received significantly smaller Paycheck Protection Program (PPP) loans than White-owned businesses. Loan disparities decreased with increased competition from fintech lenders and more bank branches, highlighting the impact of systemic inequalities.
Area of Science:
- Economics
- Financial Inclusion
- Racial Equity
Background:
- The Paycheck Protection Program (PPP) aimed to support small businesses during the COVID-19 pandemic.
- Historical lending patterns and program design may have influenced equitable distribution of PPP funds.
- Previous research indicates racial disparities in lending by commercial banks.
Purpose of the Study:
- To assess the role of race in the distribution of Paycheck Protection Program loans.
- To investigate factors influencing disparities in loan amounts between Black-owned and White-owned businesses.
- To examine the impact of bank competition and fintech participation on loan equity.
Main Methods:
- Analysis of newly released data on Paycheck Protection Program loans.
- Comparative analysis of loan sizes for Black-owned versus White-owned businesses.
- Examination of the influence of bank competition and lender type on loan disparities.
Main Results:
- Black-owned businesses received PPP loans approximately 50% lower than observationally similar White-owned businesses.
- Loan size disparities decreased over time with the entry of fintech and non-traditional lenders.
- Smaller loan differences were observed in areas with greater bank competition.
Conclusions:
- Racial inequalities in banking systems can impact the equitable distribution of government relief programs.
- Increased competition among lenders, including fintechs, can mitigate lending discrimination.
- Policy design should consider existing systemic inequalities to promote equitable outcomes.
Keywords:
Discrimination in financial marketsMinority-owned firmsOvercoming discriminatory barriersRacial discriminationMore Related Videos
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