Critical Finance Review > Vol 3 > Issue 1

Bank Deregulation and Racial Inequality in America

Ross Levine, Haas School of Business, University of California, Yona Rubinstein, Brown University, Alexey Levkov, Federal Reserve Bank of Boston
Suggested Citation
Ross Levine, Yona Rubinstein and Alexey Levkov (2014), "Bank Deregulation and Racial Inequality in America", Critical Finance Review: Vol. 3: No. 1, pp 1-48.

Publication Date: 09 Jan 2014
© 2013 R. Levine, Y. Rubinstein, and A. Levkov
DiscriminationImperfect CompetitionBanksRegulation


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In this article:
1. Bank Deregulation and New Firm Entry 
2. Data 
3. Results 
4. Robustness Checks 
5. Conclusions 


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) theory of racial discrimination, we find that in economies where employers have sufficiently strong racial biases, deregulation-induced improvements in the banking system boosted black workers' relative wages by facilitating the entry of new firms and reducing the manifestation of racial prejudices in labor markets.