Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Community Reinvestment Act and small business lending in low- and moderate-income neighborhoods during the financial crisis

Contents:

Author Info

  • Elizabeth Laderman
  • Carolina Reid
Registered author(s):

    Abstract

    Over the last three years, the financial crisis and ensuing recession have led to tectonic shifts in the availability of credit, especially for small businesses. Data show that the number of loans to small businesses has dropped from 5.2 million loans in 2007 to 1.6 million in 2009. This trend is of significant concern to policy-makers, particularly given the important role that small businesses play in the US economy. Making credit accessible to small businesses, therefore, is seen as a critical component of economic recovery. Despite this policy focus, however, few studies have documented recent trends in small business lending, and even fewer have focused attention on the implications of the reduction in credit for small businesses in low- and moderate-income neighborhoods. ; In this paper, we seek to address this gap by examining trends in small business lending in low- and moderate-income (LMI) neighborhoods by large banks regulated under the Community Reinvestment Act (CRA). We find that there is a strong relationship between the boom and bust housing market cycle and patterns in small business lending, both over time and over space. While small business lending expanded rapidly between 2003 and 2007, this expansion was uneven, and neither LMI communities nor neighborhoods with a high percentage of African American residents appear to have benefited as much as other areas from the boom. Since 2007, small business lending has contracted significantly, particularly in areas that have also seen contractions in the housing sector. Our results show significant spillover effects of the mortgage crisis into small business lending—for the economy as a whole as well as for LMI areas in particular. Our findings suggest that in order to reverse the cycle of disinvestment in neighborhoods hit hard by foreclosures, we need to address the small business sector as well as housing.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.frbsf.org/publications/community/wpapers/2010/wp2010-05.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Federal Reserve Bank of San Francisco in its series Community Development Investment Center Working Paper with number 2010-05.

    as in new window
    Length:
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:fip:fedfcw:2010-05

    Contact details of provider:
    Postal: P.O. Box 7702, San Francisco, CA 94120-7702
    Phone: (415) 974-2000
    Fax: (415) 974-3333
    Email:
    Web page: http://www.frbsf.org/
    More information through EDIRC

    Order Information:
    Email:

    Related research

    Keywords: Bank loans ; Small business - Finance;

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2006. "Small-firm credit markets, SBA-guaranteed lending, and economic performance in low-income areas," Working Paper 0601, Federal Reserve Bank of Cleveland.
    2. Kenneth P. Brevoort & John A. Holmes & John D. Wolken, 2010. "Distance still matters: the information revolution in small business lending and the persistent role of location, 1993-2003," Finance and Economics Discussion Series 2010-08, Board of Governors of the Federal Reserve System (U.S.).
    3. Robert DeYoung & W. Scott Frame & Dennis Glennon & Daniel P. McMillen & Peter J. Nigro, 2007. "Commercial lending distance and historically underserved areas," Working Paper 2007-11, Federal Reserve Bank of Atlanta.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fip:fedfcw:2010-05. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diane Rosenberger).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.