Distributional Consequences of Monetary Policy Across Races: Evidence from the U.S. Credit Register

We examine the consequences of monetary policy on racial disparities, focusing on the role of bank lending to firms through collateral and selection channels. Leveraging comprehensive loan-level data from the U.S. credit register (Y-14Q) of the Federal Reserve, we show that firms in Black communities obtain business loans that are more expensive and have a shorter maturity. These firms are also more likely to experience adverse credit supply shocks, controlling for firms' risk and investment opportunities, as well as geographic and cultural covariates. We also study the effects of monetary policy across racial groups and document that, following a monetary policy tightening, banks extend loans to firms in Black communities at disproportionately higher interest rates. Furthermore, banks pass a monetary tightening through to loan rates for borrowers who have no collateral, have prior defaults, and have a shorter banking relationship, but even more to loan rates for firms in Black communities. Our findings suggest that monetary policy has distributional consequences in the form of tightened selectivity for Black minorities through lending conditions. Our analysis calls for place-based policies that target certain minority groups.