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Does the Community Reinvestment Act increase lending to small businesses in lower income neighborhoods?

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  • Kim, Mee Jung
  • Lee, Kyung Min
  • Earle, John S.

Abstract

We estimate the impact of the Community Reinvestment Act (CRA) on small business lending in lower-income neighborhoods. Using 2004–2016 panel data on census tracts, we apply a combined regression discontinuity and fixed effect method. We find that the number of small business loans increases by about 3 to 7 percent and the total dollar amount of small business loans by about 6 to 10 percent in tracts becoming treated by the CRA. The results are robust along many dimensions and suggest that the CRA has a positive impact on access to finance for small businesses in lower income areas.

Suggested Citation

  • Kim, Mee Jung & Lee, Kyung Min & Earle, John S., 2021. "Does the Community Reinvestment Act increase lending to small businesses in lower income neighborhoods?," Economics Letters, Elsevier, vol. 209(C).
    • Handle: RePEc:eee:ecolet:v:209:y:2021:i:c:s0165176521004237
    DOI: 10.1016/j.econlet.2021.110146
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    References listed on IDEAS

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    1. Mee Jung Kim & Kyung Min Lee & J. David Brown & John S. Earle, 2021. "Black Entrepreneurs, Job Creation, and Financial Constraints," Working Papers 21-11, Center for Economic Studies, U.S. Census Bureau.
    2. Robert B. Avery & Kenneth P. Brevoort, 2015. "The Subprime Crisis: Is Government Housing Policy to Blame?," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 352-363, May.
    3. Timothy E. Dore & Traci L. Mach, 2018. "Recent Trends in Small Business Lending and the Community Reinvestment Act," FEDS Notes 2018-01-02, Board of Governors of the Federal Reserve System (U.S.).
    4. Lee, Hyojung & Bostic, Raphael W., 2020. "Bank adaptation to neighborhood change: Mortgage lending and the Community Reinvestment Act," Journal of Urban Economics, Elsevier, vol. 116(C).
    5. Neil Bhutta & Daniel R. Ringo, 2015. "Assessing the Community Reinvestment Act's Role in the Financial Crisis," FEDS Notes 2015-05-26-1, Board of Governors of the Federal Reserve System (U.S.).
    6. Timothy Bates & Alicia Robb, 2015. "Has the Community Reinvestment Act increased loan availability among small businesses operating in minority neighbourhoods?," Urban Studies, Urban Studies Journal Limited, vol. 52(9), pages 1702-1721, July.
    7. Neil Bhutta, 2011. "The Community Reinvestment Act and Mortgage Lending to Lower Income Borrowers and Neighborhoods," Journal of Law and Economics, University of Chicago Press, vol. 54(4), pages 953-983.
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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.
    2. Colleen Casey & Timothy Bates & Joseph Farhat, 2023. "Linkages between regional characteristics and small businesses viability," Small Business Economics, Springer, vol. 61(2), pages 617-629, August.
    3. Kim, Mee Jung, 2023. "Impact of the Community Reinvestment Act on small business employment in lower income neighborhoods," Regional Science and Urban Economics, Elsevier, vol. 98(C).
    4. Han, Luyi & Pan, Yuxuan & Goetz, Stephan J. & Rupasingha, Anil, 2023. "Impact of Community Reinvestment Act on Minority and Female Employment Growth," 2023 Annual Meeting, July 23-25, Washington D.C. 335703, Agricultural and Applied Economics Association.

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    More about this item

    Keywords

    Financial constraints; Small business lending; Community Reinvestment Act; Lower income neighborhood;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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