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The Past, Present and Future of Community Reinvestment Act (CRA): A Historical Perspective

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  • AKM Rezaul Hossain

    (University of Connecticut)

Abstract

This paper takes a historical approach to understand the evolution of one of the most controversial banking regulations in recent history, the Community Reinvestment Act (CRA) of 1978 and its effects on access to credit and banking services to community borrowers. The paper lays out the historical milieu of credit markets in the late seventies and describes the early justification of this legislation. The paper explores the implementation of the act through regulations on lending institutions and the effects of the regulations on depository lenders and community borrowers. Detailed description of the reactions to CRA regulations by different parties involved in the act is provided. This reaction and consequent revisions to the regulations have contributed to keep the act effective and relevant. In addition to the reactions, the act has responded to the structural reorganization and regulatory changes in the banking sector and mortgage markets in particular. The paper illustrates this dynamic nature of implementation, reactions and revisions that has shaped CRA regulations over last quarter century. The paper argues that historical understanding and justification is important to formulate future changes to the regulation. This understanding is important to keep the act objective, measurable and enforceable. While inclusion of all possible requirements that may enhance community lending is not the correct approach to future changes in CRA, keeping the act static to its initial requirements is also not appropriate from public policy standpoint. A balance between the two should guide the future changes to the act. Finally, the paper points out the trends in community lending and suggests some of the future changes to the regulation.

Suggested Citation

  • AKM Rezaul Hossain, 2004. "The Past, Present and Future of Community Reinvestment Act (CRA): A Historical Perspective," Working papers 2004-30, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2004-30
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    References listed on IDEAS

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    Cited by:

    1. David G. Tarr, 2010. "The political, regulatory, and market failures that caused the US financial crisis," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 2(2), pages 163-186, June.

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    More about this item

    Keywords

    Community Reinvestment Act (CRA); Redlining; CRA reforms; Access to credit;
    All these keywords.

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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