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Do CRA Agreements Influence Lending Patterns?

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  • Raphael W. Bostic
  • Breck L. Robinson

Abstract

This article considers the broader impact of Community Reinvestment Act (CRA) agreements-bank pledges to extend a certain volume of lending to targeted groups and communities-by examining whether they are associated with changes in lending to lower-income and minority communities in the markets where they are initiated. We find the number of newly initiated CRA agreements in a county to be associated with significant increases in CRA, minority and overall conventional mortgage lending in a county over a three-year period. The results are consistent with the view that the increases in lending represent new lending, with some evidence suggesting that the increases in lending are relatively short-lived. Overall, the results are consistent with the notion that lenders view CRA agreements as a form of insurance against the potentially large and unknown costs associated with fair lending violations, poor CRA performance ratings and adverse publicity from CRA-related protests of mergers or other applications. The results are also consistent with the view that the effectiveness of CRA agreements in increasing lending activity is ultimately determined by the persistence and sophistication of community groups in monitoring compliance with CRA agreements. Copyright 2003 American Real Estate and Urban Economics Association

Suggested Citation

  • Raphael W. Bostic & Breck L. Robinson, 2003. "Do CRA Agreements Influence Lending Patterns?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(1), pages 23-51, March.
  • Handle: RePEc:bla:reesec:v:31:y:2003:i:1:p:23-51
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    References listed on IDEAS

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    1. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, pages 393-410.
    2. Bostic, Raphael W. & Gans, Joshua S. & Stern, Scott, 1997. "Urban Productivity and Factor Growth in the Late Nineteenth Century," Journal of Urban Economics, Elsevier, vol. 41(1), pages 38-55, January.
    3. Robert B. Avery & Raphael W. Bostic & Paul S. Calem & Glenn B. Canner, 1999. "Trends in home purchase lending: consolidation and the Community Reinvestment Act," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), pages 81-102.
    4. Douglas D. Evanoff & Lewis M. Segal, 1996. "CRA and fair lending regulations: resulting trends in mortgage lending," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 19-46.
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    Cited by:

    1. King, Thomas B. & Morley, James, 2007. "In search of the natural rate of unemployment," Journal of Monetary Economics, Elsevier, pages 550-564.
    2. repec:eee:quaeco:v:65:y:2017:i:c:p:25-35 is not listed on IDEAS
    3. AKM Rezaul Hossain, 2004. "The Past, Present and Future of Community Reinvestment Act (CRA): A Historical Perspective," Working papers 2004-30, University of Connecticut, Department of Economics.
    4. Raphael W. Bostic & Breck L. Robinson, 2004. "The impact of CRA agreements on community banks," Proceedings 916, Federal Reserve Bank of Chicago.
    5. Ding, Lei & Nakamura, Leonard I., 2017. "“Don't Know What You Got Till It’s Gone” — The Effects of the Community Reinvestment Act (CRA) on Mortgage Lending in the Philadelphia Market," Working Papers 17-15, Federal Reserve Bank of Philadelphia.
    6. Bostic, Raphael W. & Robinson, Breck L., 2004. "The impact of CRA agreements on community banks," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 3069-3095, December.
    7. Demyanyk, Yuliya, 2008. "U.S. banking deregulation and self-employment: A differential impact on those in need," Journal of Economics and Business, Elsevier, pages 165-178.

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