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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.

Suggested Citation

  • Donald F. Vitaliano & Gregory Stella, 2003. "The Thrift Industry and the Community Reinvestment Act: Assessing the Cost of Social Responsibility," Rensselaer Working Papers in Economics 0312, Rensselaer Polytechnic Institute, Department of Economics.
  • Handle: RePEc:rpi:rpiwpe:0312

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    References listed on IDEAS

    1. 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.
    2. 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.
    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. 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 435-444, June.
    5. Suits, Daniel B, 1984. "Dummy Variables: Mechanics v. Interpretation," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 177-180, February.
    6. 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.
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    More about this item

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • 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

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