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Does the Community Reinvestment Act influence lending? an analysis of changes in bank low-income mortgage activity

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  • Drew Dahl
  • Douglas D. Evanoff
  • Michael F. Spivey

Abstract

Anecdotal evidence that the Community Reinvestment Act (CRA) influences the lending behavior of financial institutions has not been uniformly supported by empirical research. We revisit this issue by evaluating changes in low-income mortgage lending at commercial banks over the 1992-96 period. Our empirical results fail to support a hypothesis that banks respond to public and regulatory pressure exerted as a result of a downgrade in CRA rating by increasing low-income mortgage lending. The findings are consistent with the contention that during this period regulators stressed adjustments in the lending process of banks (e.g., documentation of lending program and efforts directed at targeted markets) more than lending performance. The findings underscore the importance of regulatory efforts made later in the decade to more closely link enforcement of the CRA to lending outcomes.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-00-6.

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Date of creation: 2000
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Handle: RePEc:fip:fedhwp:wp-00-6

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Keywords: Community Reinvestment Act of 1977 ; Mortgages ; Bank loans ; Financial institutions;

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Cited by:
  1. Patrick Honohan, 2004. "Financial Sector Policy and the Poor : Selected Findings and Issues," World Bank Publications, The World Bank, number 14874, July.
  2. Drew Dahl & Douglas Evanoff & Michael Spivey, 2003. "The Timing and Persistence of CRA Compliance Ratings," Journal of Financial Services Research, Springer, vol. 23(2), pages 113-132, April.
  3. AKM Rezaul Hossain, 2010. "Branch location choice: Do lenders discriminate?," Economía, Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela, vol. 35(30), pages 11-55, July-Dece.
  4. Demirgüç-Kunt, A. & Beck, T.H.L. & Honohan, P., 2008. "Finance for all?: Policies and pitfalls in expanding access," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3508393, Tilburg University.

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