Study: Minority-Owned Banks Less Likely to Receive TARP Program Funds

Banks owned by African-Americans and other minorities may have suffered racial discrimination at the hands of the TARP bailout program, a new study finds.

The report, authored by Louisiana-Lafayette finance professor Linus Wilson and Stanford political science grad student Lucas Puente, finds that non-minority banks were approximately 10 times more likely to obtain funds than African-American owned banks, controlling for other factors. The researchers compared the 36 banks and thrifts that received of roughly $500 million in funds disbursed through the TARP’s Community Development Capital Initiative (CDCI) in 2010 and controlled for differences other than race to obtain their results.

Wilson, a frequent critic of TARP, emailed RealClearPolicy: “It is disappointing to learn that black owned banks were significantly less likely to get TARP funds. The TARP program is distasteful enough to most Americans without the program being tainted by the specter of racial discrimination.”

The authors suggest that the racial gap in CDCI investments might have been related to the then-ongoing controversy surrounding Maxine Waters, who was at the time the third-highest-ranking Democrat on the House Financial Services Committee. Waters’ husband owned stock in an African-American-owned bank that received funds from a different TARP program at Waters’ urging. Following the incident, Waters became the subject of a Congressional ethics inquiry. The charges were resolved in 2012 in her favor, although her grandson, who served as her chief of staff, was reprimanded for his role. Puente and Wilson speculate that the controversy surrounding the episode may have scared off African-American banks or Treasury officials.

The study also concludes that recipients of CDCI funds were more likely to have participated in the original TARP capital infusion program, but that political influence was likely not a factor in the loans made.  

Joseph Lawler is editor of RealClearPolicy. He can be reached by email or on twitter.

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