Historically, lenders have been accused of “redlining” minority neighborhoods as well as refusing to lend to minority applicants. Considerable bank regulation is designed to prevent both actions. However, the strong correlation between race and neighborhood makes it difficult to distinguish the impact of geographic discrimination from the effects of racial discrimination. Previous studies have failed to untangle these two influences, in part, because of severe omitted variable bias. The data set in this paper allows the distinct effects of race and geography to be identified, and it shows that the evidence for redlining is weak.

Recently, several central banks have lost their bank supervisory responsibilities, in part because it has not been shown that supervisory authority improves the conduct of monetary policy. This paper finds that confidential bank supervisory information could help the Board staff more accurately forecast important macroeconomic variables and is used by FOMC members to guide monetary policy. These findings suggest that the complementarity between supervisory responsibilities and monetary policy should be an important consideration when evaluating the structure of the central bank.