The Life Cycle of a Bank Enforcement Action and Its Impact on Minority Lending

This paper studies the role banking supervision plays in improving access to credit for minorities by investigating how enforcement decisions and orders (EDOs) affect bank borrower base. We document significant changes in the underlying demographic mix of residential mortgage borrowers. After an EDO's termination, banks significantly increase residential mortgage lending to minorities and increase their market share of lending to this group within the counties where they operate. EDO banks are also less likely to deny loans to minority borrowers, and their reasons for loan denial change. Our results are consistent with banks catering to regulators after EDO termination.