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Does flexibility hinder financial regulation? The case of CRA enforcement in the USA


  • Drew Dahl


Purpose - The purpose of this paper is to determine whether lending qualifying for credit under the Community Reinvestment Act (CRA) is associated with how broadly banks define the assessment areas (AAs) within which they operate. Both are identified as components of performance for purposes of compliance with the CRA. Design/methodology/approach - Regression analysis using a sample of 212 banks, observed in 2006. Findings - Qualifying lending and AA lending are found to be unrelated. This is inconsistent with an ability of banks to gerrymander their AAs in order to tradeoff one regulatory standard against another. Practical implications - Subjectivity inherent in AA delineation does not necessarily mitigate the achievement of regulatory objectives on qualifying lending. This is relevant to the ongoing debate concerning the role of flexibility in financial regulation. Originality/value - This is believed to be the first empirical study on bank-specific factors associated with AA lending under the CRA.

Suggested Citation

  • Drew Dahl, 2010. "Does flexibility hinder financial regulation? The case of CRA enforcement in the USA," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 18(3), pages 193-200, July.
  • Handle: RePEc:eme:jfrcpp:v:18:y:2010:i:3:p:193-200

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    References listed on IDEAS

    1. Elizabeth Laderman & Carolina Reid, 2008. "Lending in low- and moderate-income neighborhoods in California: the performance of CRA lending during the subprime meltdown," Community Development Investment Center Working Paper 2008-05, Federal Reserve Bank of San Francisco.
    2. 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.
    3. Donald F. Vitaliano & Gregory P. Stella, 2007. "How increased enforcement can offset statutory deregulation: The case of the Community Reinvestment Act," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 15(3), pages 262-274, July.
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    More about this item


    United States of America; Banks; Loans; Legislation;


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