Abstract
This paper analyzes whether minority-owned banks pass along an advantage in access to governmental deposits to the communities they serve in the form of higher interest rates paid on certificates of deposit (CDs). Although academic evidence has not confirmed increased profitability or efficiency of these banks since the creation of the Minority Bank Deposit Program, their unique positioning within communities may allow them to meet the needs of a clientele with lower and less stable income, and with higher than average expected future deposit withdrawals. Data from the regulatory reports provided by minority and non-minority owned banks are analyzed using five distinct time horizons for CDs. The results suggest that Black-owned banks consistently pay higher interest rates on CDs, with a lower premium for longer-term CDs, and used the premium to cushion the ill effects of the recent financial collapse on their customers. Asian-owned banks provide a smaller premium for short-term CDs, while the remaining category of minority-owned banks, including Native American, Hispanic, and Women-owned banks, also paid a premium on CDs, but shrank that premium substantially following the financial collapse. Note also that minority-owned banks may use this funding advantage in a variety of other ways to serve their respecitive communities.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Baltaqi B. Econometrics. 5th ed. New York: Springer; 2011.
Barros P. Multimarket competition in banking, with an example from the Portuguese market. Int J Ind Organ. 1999;17:335–52.
Bates T, Bradford W. An analysis of the portfolio behavior of black-owned commercial banks. J Finance. 1980;35:753–68.
Berger A, Hannan T. Deposit interest rates and local market concentration. In: Weiss LW editor. Concentration and price. 1989. p 255–65.
Berger A, Humphrey B. The dominance of inefficiencies over scale and product mix economies in banking. J Monet Econ. 1991;28:117–48.
Black H, Collins M, Cyree K. Do black-owned banks discriminate against black borrowers? J Financ Serv Res. 1997;11:189–204.
Blinder A. Wage discrimination: reduced form and structural estimates. J Hum Resour. 1973;8:436–55.
Boehm T, Thistle P, Schlottmann A. Rates and race: an analysis of racial disparities in mortgage rates. Hous Policy Debate. 2006;17:109–48.
Bostic R. A test of cultural affinity in home mortgage lending. J Financ Serv Res. 2003;23:89–112.
Buser S, Chen A, Kane E. Federal deposit insurance, regulatory policy, and optimal bank capital. J Finance. 1981;36:51–60.
Caprio G, Levine, R. Reforming finance in transitional socialist economies. World Bank; 1993. Working Paper Series 898.
Chang M. Lifting as we climb: women of color, wealth, and America’s future. Oakland: Insight Center for Community Economic Development; 2010.
Cole J, Edwards A, Hamilton E, Reuben L. Black banks: a survey and analysis of the literature. Rev Black Polit Econ. 1985;14:29–50.
Craig B, Dinger V. Bank mergers and the dynamics of deposit interest rates. J Finan Serv Res. 2009;36:2–3.
Demirguc-Kunt A, Huizinga H. Determinants of commercial bank interest margins and profitability: some international evidence. World Bank Econ Rev. 1999;13:379–408.
Hannan T, Prager R. Multimarket bank pricing: an empirical investigation of deposit interest rates. J Econ Bus. 2006;58:256–72.
Hasan I, Hunter W. Management efficiency in minority- and women-owned banks. Econ Perspect. 1996;20:20–8.
Iqbal Z, Ramaswamy K, Akhigbe A. The output efficiency of minority-owned banks in the United States. Int Rev Econ Finance. 1999;8:105–14.
Ladd H. Evidence on discrimination in mortgage lending. J Econ Perspect. 1998;12:41–62.
Lawrence E. The viability of minority-owned banks. Q Rev Econ Finan. 1997;37:1–21.
Lin C, Ma Y, Song, F. Bank competition, credit information sharing and banking efficiency, Paper Presented at the Sixth Asia Pacific Economic Association Conference, Hong Kong; 2010.
Matasar A, Pavelka D. Minority banks and minority communities: are minority banks good neighbors? Int Adv Econ Res. 2004;10:43–58.
Oaxaca R. Male–female wage differentials in urban labor markets. Int Econ Rev. 1973;14:693–709.
Park K, Pennacchi G. Harming depositors and helping borrowers: the disparate impact of bank consolidation. Rev Financ Stud. 2009;22:1–40.
Phillips S. The subprime crisis and African Americans. Rev Black Polit Econ. 2010;37:223–9.
Prager R, Hannan T. Do substantial horizontal mergers generate significant price effects? Evidence from the banking industry. J Ind Econ. 1998;46:433–52.
Price D. Minority-owned banks: history and trends. Federal Reserve Bank of Cleveland. 1990, July 1. https://www.clevelandfed.org/Research/Commentary/1990/0701.pdf Retrieved 14 July 2012.
Radecki L. The expanding geographic reach of retail banking markets. Fed Reserv Bank N Y Econ Policy Rev. 1998;4:15–34.
Reuben L. The subprime crisis and African Americans: response. Rev Black Polit Econ. 2010;37:3–4.
Rosen R. Banking market conditions and deposit interest rates. J Bank Financ. 2007;31:3862–84.
Rugh J, Massey D. Racial segregation and the American foreclosure crisis. Am Sociol Rev. 2010;75:629–51.
Stiglitz J. Some lessons from the East Asian miracle. World Bank Res Obser. 1996;11:151–77.
Taylor P, Kochhar R, Fry R, Velasco G, Motel S. Twenty-to-one: wealth gaps rise to record highs between whites, blacks and hispanics. Washington: Pew Research Center; 2011.
Tirole J. The theory of industrial organization. 1st ed. Cambridge: MIT Press; 1988.
Westort P, Kashian R, Cummings R. Does ownership form in community banking impact profitability? Manag Finan. 2010;36:122–33.
Author information
Authors and Affiliations
Corresponding author
About this article
Cite this article
Kashian, R., McGregory, R. & Lockwood, N. Do Minority-owned Banks Pay Higher Interest Rates on CDs?. Rev Black Polit Econ 41, 13–24 (2014). https://doi.org/10.1007/s12114-013-9169-3
Published:
Issue Date:
DOI: https://doi.org/10.1007/s12114-013-9169-3