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Do Minority-owned Banks Pay Higher Interest Rates on CDs?

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  • Russ Kashian
  • Richard McGregory
  • Neil Lockwood

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. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Russ Kashian & Richard McGregory & Neil Lockwood, 2014. "Do Minority-owned Banks Pay Higher Interest Rates on CDs?," The Review of Black Political Economy, Springer;National Economic Association, vol. 41(1), pages 13-24, March.
    • Handle: RePEc:spr:blkpoe:v:41:y:2014:i:1:p:13-24
    DOI: 10.1007/s12114-013-9169-3
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    References listed on IDEAS

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    Cited by:

    1. Rodney D. Green & Sue E. Houchins, 2017. "Black Progress Through Business Improvement: Two Articles by Joseph R. Houchins, 1900-1989," The Review of Black Political Economy, Springer;National Economic Association, vol. 44(3), pages 393-401, December.
    2. Robin G. Newberger & Maude Toussaint-Comeau, 2017. "Minority-Owned Banks and Their Primary Local Market Areas," Economic Perspectives, Federal Reserve Bank of Chicago, issue 4, pages 1-31.
    3. Russ Kashian & Richard McGregory & Robert Drago, 2016. "ATM Fees at Black and Hispanic Owned Single Market Banks: A Comparative Analysis," The Review of Black Political Economy, Springer;National Economic Association, vol. 43(1), pages 69-84, March.

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