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Effects of the Community Reinvestment Act (CRA) on Small Business Lending

Author

Listed:
  • Raphael Bostic
  • Lei Ding
  • Hyojung Lee

Abstract

This study provides new evidence on the effectiveness of the Community Reinvestment Act (CRA) on small business lending by focusing on a sample of neighborhoods with changed CRA eligibility status across the country because of an exogenous policy shock in 2013. The results of difference-in-differences analysis provide consistent evidence that the CRA promotes small business lending, especially in terms of number of loan originations, in lower-income neighborhoods. The generally positive effects of the CRA are sensitive to the types of CRA treatment. Losing CRA eligibility status has a relatively larger effect on small business lending activities, while the effects of newly gaining CRA eligibility are less pronounced. The results are fairly robust when alternative sample periods and control groups are used.

Suggested Citation

  • Raphael Bostic & Lei Ding & Hyojung Lee, 2018. "Effects of the Community Reinvestment Act (CRA) on Small Business Lending," Community Affairs Discussion Paper 18-1, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpcd:18-01
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/community-development/discussion-papers/discussion-paper-effects-of-the-cra-on-small-business-lending.pdf
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    Cited by:

    1. Panagiotis Avramidis & George Pennacchi & Konstantinos Serfes & Kejia Wu, 2022. "The Role of Regulation and Bank Competition in Small Firm Financing: Evidence from the Community Reinvestment Act," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(8), pages 2301-2340, December.

    More about this item

    Keywords

    Small Business; Credit; Community Reinvestment Act;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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