Concept
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The fourth regulatory function is the prevention of discriminatory practices by commercial banks. Such regulations mandate that banks are not allowed to discriminate against creditors according to race, ethnicity, religious creed or other non-financial variables – a practice called ‘redlining’. This regulation is essential as there have been cases where commercial banks have charged higher interest rates to clients based on their ethnicity or race. For example, in the USA, banks were found to be charging Hispanics and African Americans higher interest rates on loans, requiring the Federal Reserve to step in and address the discrimination.