This paper provides evidence that bank competition reduces gender and racial gaps in entrepreneurship by improving banking services and reducing discrimination. Exploiting the interstate bank deregulation from 1994 to 2021, I find that stronger bank competition increases the quantity and quality of banking services provided to minority borrowers. I develop a novel measure of bank discrimination based on the narrative information extracted from the complaints filed to the Consumer Financial Protection Bureau (CFPB) using textual analysis. Using this measure, I find that bank competition reduces complaints about discrimination. Due to the improved banking services and reduced discrimination, bank competition reduces the entrepreneurial gaps by loosening the financial constraints of female and minority entrepreneurs. At the firm level, relaxed financial constraints reduce the gender and racial gaps in startup performance. As a consequence, equal access to entrepreneurial opportunities reduces gender and racial disparities in entrepreneurial equity, and thus fosters wealth equality. Finally, I present evidence that bank competition can reduce racial disparities in access to the Paycheck Protection Program (PPP) loans which are fully guaranteed by the federal government and risk-free. This unique setting eliminates the concern that disparities in credit risk may drive the entrepreneurial gaps. Overall, my results suggest that bank competition can promote equity in access to finance and generate equitable economic growth.
