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The Community Reinvestment Act (CRA) and Bank Branching Patterns

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Listed:
  • Lei Ding
  • Carolina Reid

Abstract

This paper examines the relationship between the Community Reinvestment Act (CRA) and bank branching patterns, measured by the risk of branch closure and the net loss of branches at the neighborhood level, in the aftermath of Great Recession. Between 2009 and 2017, there was a larger decline in the number of bank branches in lower-income neighborhoods than in more affluent ones, raising concerns about access to mainstream financial services. However, once we control for supply and demand factors that influence bank branching decisions, we find generally consistent evidence that the CRA is associated with a lower risk of branch closure, and the effects are stronger for neighborhoods with fewer branches, for larger banks, and for major metro areas. The CRA also reduces the risk of net bank losses in lower-income neighborhoods. The evidence from our analysis is consistent with the notion that the CRA helps banks meet the credit needs of underserved communities and populations by ensuring the continued presence of brick-and-mortar branches.

Suggested Citation

  • Lei Ding & Carolina Reid, 2019. "The Community Reinvestment Act (CRA) and Bank Branching Patterns," Community Affairs Discussion Paper 19-1, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpcd:19-01
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/community-development/discussion-papers/discussion-paper_cra-and-bank-branching-patterns.pdf
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    More about this item

    Keywords

    Banking industry; Community Reinvestment Act; Branch; Regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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