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The Thrift Industry and the Community Reinvestment Act: Assessing the Cost of Social Responsibility

  • Donald F. Vitaliano

    ()

    (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)

  • Gregory Stella

    ()

    (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)

A stochastic frontier cost function indicates that the annual cost of complying with the anti-redlining Community Reinvestment Act (CRA) is $171,000 per thrift institution, roughly 2.3 percent of variable costs. But compliance cost is significantly less than the estimated 21 percent cost inefficiency. Based on published estimates of the incremental number of mortgage loans induced by CRA, the marginal cost is $38,000 per loan. The regulations whose compliance cost is estimated apply to about 80 percent of all U.S. banks.

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Paper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0312.

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Date of creation: Nov 2003
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Handle: RePEc:rpi:rpiwpe:0312
Contact details of provider: Web page: http://www.economics.rpi.edu/
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  1. Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, vol. 86(1), pages 25-53, March.
  2. Suits, Daniel B, 1984. "Dummy Variables: Mechanics v. Interpretation," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 177-80, February.
  3. Hochman, Harold M. & Nitzan, Shmuel, 1985. "Concepts of extended preference," Journal of Economic Behavior & Organization, Elsevier, vol. 6(2), pages 161-176, June.
  4. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  5. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-44, June.
  6. Braeutigam, Ronald R. & Daughety, Andrew F., 1983. "On the estimation of returns to scale using variable cost functions," Economics Letters, Elsevier, vol. 11(1-2), pages 25-31.
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