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

  • AKM Rezaul Hossain

    (University of Connecticut)

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.

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File URL: http://web2.uconn.edu/economics/working/2004-30.pdf
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2004-30.

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Length: 88 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:uct:uconnp:2004-30
Contact details of provider: Postal: University of Connecticut 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063
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Web page: http://www.econ.uconn.edu/

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  1. Lin, Emily Y., 2001. "Information, Neighborhood Characteristics, and Home Mortgage Lending," Journal of Urban Economics, Elsevier, vol. 49(2), pages 337-355, March.
  2. Raphael W. Bostic & Breck L. Robinson, 2003. "Do CRA Agreements Influence Lending Patterns?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(1), pages 23-51, 03.
  3. Thakor, Anjan V & Beltz, Jess, 1994. "A "Barter" Theory of Bank Regulation and Credit Allocation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 679-705, August.
  4. Robert B. Avery & Raphael W. Bostic & Paul S. Calem & Glenn B. Canner, 1999. "Trends in home purchase lending: consolidation and the Community Reinvestment Act," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Feb, pages 81-102.
  5. Douglas D. Evanoff & Lewis M. Segal, 1996. "CRA and fair lending regulations: resulting trends in mortgage lending," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 19-46.
  6. Dimitri B. Papadimitriou & Ronnie J. Phillips & L. Randall Wray, 1993. "The Community Reinvestment Act, Lending Discrimination, and the Role of Community Development Banks," Economics Working Paper Archive wp_95, Levy Economics Institute.
  7. Robert B. Avery & Patricia E. Beeson & Mark S. Sniderman, 1997. "Information dynamics and CRA strategy," Economic Commentary, Federal Reserve Bank of Cleveland, issue Feb.
  8. Glenn B. Canner & Elizabeth Laderman & Andreas Lehnert & Wayne Passmore, 2002. "Does the Community Reinvestment Act (CRA) cause banks to provide a subsidy to some mortgage borrowers?," Finance and Economics Discussion Series 2002-19, Board of Governors of the Federal Reserve System (U.S.).
  9. Jeffrey M. Lacker, 1995. "Neighborhoods and banking," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 13-38.
  10. Stephen L. Ross & John Yinger, 2002. "The Color of Credit: Mortgage Discrimination, Research Methodology, and Fair-Lending Enforcement," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182289, June.
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