Federal Reserve Chairman Says Lending Discrimination Is Bad For The Economy

Jet, March 29, 1999

Discrimination by lenders against minority-owned small businesses is bad for the economy, said Federal Reserve Chairman Alan Greenspan.

Recent studies "have found discrepancies in the turndown rates" for small business loans and "not all of these differences are readily explained by income, balance sheet factors, or credit histories," he said in a speech prepared for a Federal Reserve research conference in Arlington, VA.

More research needs to be done, he said, "but if, after such examination, the gap persists, it raises disturbing questions."

Greenspan said, "To the extent that market participants discriminate--consciously or, more likely unconsciously--credit does not flow to its most profitable uses and the distribution of output is distorted. In the end, costs are higher, less real output is produced, and national wealth accumulation is slowed."

Discrimination-free lending, he said, "can generate hIgher returns to human capital and other productive resources."

He added, "It is important for lenders to understand that failure to recognize the profitable opportunities represented by minority enterprises not only harms these firms, it harms the lending institutions and ultimately, robs the broader economy of growth potential."