Redlining redux: black neighborhoods, black-owned firms, and the regulatory cold shoulder

There has been a growing body of evidence indicating race-based discrimination in small business lending. However, very little research has examined potential geographic redlining effects. This article measures small business lending flows to neighborhoods in the Philadelphia metropolitan area. It advances previous work by measuring differential credit flows while accounting for variations in the credit scores of small firms. Black tracts receive fewer loans after accounting for firm density, firm size, industrial mix, neighborhood income, and the credit quality of local firms. The findings suggest that federal bank regulators should expand small business lending data to include racial characteristics and application information, in part to help identify potentially discriminating lenders for further investigation. Also, Community Reinvestment Act regulations should pay more attention to the distribution of small business loans, by both race and income of neighborhood.