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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.

Suggested Citation

  • Drew Dahl & Douglas D. Evanoff & Michael F. Spivey, 2000. "Does the Community Reinvestment Act influence lending? an analysis of changes in bank low-income mortgage activity," Working Paper Series WP-00-6, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:wp-00-6
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    Citations

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    Cited by:

    1. Sumit Agarwal & Efraim Benmelech & Nittai Bergman & Amit Seru, 2012. "Did the Community Reinvestment Act (CRA) Lead to Risky Lending?," NBER Working Papers 18609, National Bureau of Economic Research, Inc.
    2. Patrick Honohan, 2004. "Financial Sector Policy and the Poor : Selected Findings and Issues," World Bank Publications - Books, The World Bank Group, number 14874.
    3. Sumit Agarwal & John Grigsby & Ali Hortaçsu & Gregor Matvos & Amit Seru & Vincent Yao, 2024. "Searching for Approval," Econometrica, Econometric Society, vol. 92(4), pages 1195-1231, July.
    4. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    5. Drew Dahl & Douglas Evanoff & Michael Spivey, 2003. "The Timing and Persistence of CRA Compliance Ratings," Journal of Financial Services Research, Springer;Western Finance Association, vol. 23(2), pages 113-132, April.
    6. John Y. Campbell & Tarun Ramadorai & Benjamin Ranish, 2012. "How Do Regulators Influence Mortgage Risk: Evidence from an Emerging Market," NBER Working Papers 18394, National Bureau of Economic Research, Inc.
    7. 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.

    More about this item

    Keywords

    Community Reinvestment Act of 1977; Mortgages; Bank loans; Financial institutions;
    All these keywords.

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