Bank Deregulation and Racial Inequality in America

Working Paper No. RPA12-5
by Ross Levine, Alexey Levkov, and Yona Rubinstein

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.

Forthcoming in Critical Finance Review.

JEL Classifications: J7, J31, D43, D3, G21, G28

Keywords: discrimination, imperfect competition, banks, regulation

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