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We show that banks with high environmental, social, and governance (ESG) ratings issue fewer mortgages in poor localities—in number and dollar amount—than banks with low ESG ratings. This lending disparity happens at both the county and census tract level, worsens in disaster areas of severe hurricane strikes, is robust to alternative ESG ratings (including using only the social (S) component), and cannot be explained by banks’ differential deposit networks. We find no difference in mortgage default rates between high- and low-ESG banks, rejecting an alternative explanation based on differential credit screening quality. We report a complementary, not substitution, relation between high-ESG banks’ mortgage lending and their community development investments (like affordable housing projects) in poor localities. Loan-application-level analyses confirm that high-ESG banks are more likely than low-ESG banks to reject mortgage loans in poor neighborhoods. The evidence hints at social wash: banks deploy prosocial rhetoric and symbolic actions while not lending much in disadvantaged communities, the social function they arguably ought to perform. Community Reinvestment Act (CRA) examinations partially undo the social wash effect.

The incidence of misselling, fraud, and poor customer service by retail banks is significantly higher in areas with higher proportions of poor and minority borrowers and in areas where government regulation promotes an increased quantity of lending. Specifically, low-to-moderate-income (LMI) areas targeted by the Community Reinvestment Act have significantly worse outcomes, and this effect is larger for LMI areas with a high-minority population share. The results highlight an unintended adverse consequence of such quantity-focused regulations on the quality of credit to lower-income and minority customers.

Has information technology improved small businesses' access to credit by hardening the information used in loan underwriting and reducing the importance of proximity to lenders? Previous research, pointing to increasing average lending distances, suggests that it has. But this conclusion can obscure differences across loans and lenders. Using over 20 years of Community Reinvestment Act data on small business lending, we find that while average distances have increased substantially, distances at individual banks remain unchanged. Instead, average distance has increased because a small group of lenders specializing in high-volume, small-loan lending nationwide have increased their share of small business lending by 10 percentage points. Our findings imply that small businesses continue to depend on local banks.

Communities are using benefits agreements to advocate for economic investments in the context of bank mergers. This study used descriptive and critical discourse analyses to analyze 438 public comm...

This study examines the effectiveness of the Community Reinvestment Act (CRA) in facilitating small business lending to lower-income neighborhoods. Taking advantage of an exogenous policy shock tha...

Recent literature questions the relative advantage of community banks vs. non-community banks in small business funding. Using the Federal Deposit Insurance Corporation’s definition of a community bank, the study re-examines the role of community banks in providing funding to small businesses using the Community Reinvestment Act (CRA) small business lending data over the period 2003 to 2016. The empirical results indicate that community banks are still providing 30 percent more small business funding than non-community banks, especially after the Great Recession. This role is even more important in those counties in non-metropolitan areas. In addition, the results indicate that in counties where community banks do not have offices, they provide 48 percent fewer loans compared to non-community banks in counties where they do not have offices, which suggests community banks still use physical offices to maintain their relationship lending advantage. Clearly, from a public policy standpoint, the results support the view that community banks are important because they continue to provide valuable services to small business firms throughout the country.

This note analyzes competition and concentration in the small business lending market using data obtained from Community Reinvestment Act (CRA) disclosures and data on local branches from the Federal Deposit Insurance Corporation's (FDIC) Summary of Deposits (SOD). In 1963, the Supreme Court defined the product market for commercial banking.

Redlining occurs when financial institutions refuse to serve particular neighborhoods, often based on their racial and ethnic composition. Maps like those infamously created by the New Deal’s Home ...

This article 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 neighborh...

Since the passage of the Community Reinvestment Act (CRA) in 1977, regulators have grappled with the question of how best to evaluate a bank’s performance in meeting the credit needs of its...

The market share of conforming-size, home purchase mortgage originations has shifted from banking institutions to nonbank lenders. In 2017, nonbanks originated more than 1.8 million purchas...

Climate change is already causing disruption to regional economic activity. Low-to-moderate income populations are highly vulnerable to these impacts, in part, because they often have fewer resources to adapt. The stability and prosperity of local economies in the face of climate change depends on how well the public, private, and civic sectors can come together to respond to the shocks and stresses of climate change. Collaborative efforts to fund climate adaptation not only reduce the burden on highly vulnerable populations, but they also offer the opportunity for co-benefits within a broader portfolio of community development ambitions. {{p}} This report introduces the field of climate adaptation finance and explains its connection to the Community Reinvestment Act (CRA) within the context of the disaster provisions guiding pre- and post-disaster investments. In a demonstration of need, the report provides evidence of the spatial concentration of disaster declarations in areas with CRA-eligible populations. It highlights existing innovative and hypothetical investments within a broader context for stimulating greater pre-disaster planning and investment. {{p}} Community development practitioners, investors and policymakers will find this report useful for sparking new ideas about how to develop partnerships and funding streams for CRA-eligible activities?in both eligible communities and areas within a federal disaster declaration?that will reduce the vulnerability and increase the adaptive capacity of communities to the impacts of climate change.

This exploratory empirical study investigates the validity of a claim by the U.S. Office of the Comptroller of the Currency (2014) that The Community Reinvestment Act of 1977 may have acted to reduce the interest rate on high grade municipal bonds in the United States. The model also investigates the interest-rate effect of the federal budget deficit (as well as various other control variables). The estimates for the 1973–2016 study period reveal that The Community Reinvestment Act of 1977 may well have reduced the ex post real interest rate yield on high grade municipals.. The evidence also implies that the ex post real interest rate yield on high grade municipals has been an increasing function of the federal budget deficit (expressed as a percent of GDP). Federal public policy actions appear to exercise very important impacts on the market for municipal bonds.

How does the presence or absence of small business loans affect the emergence and development of rural businesses in traditionally underserved areas? Further, how has capital-intensive oil and gas development contributed to these lending patterns? In our ongoing work, we have established that locally oriented businesses such as small manufacturing establishments and retail outlets are associated with many beneficial local outcomes and promote nonmetropolitan community resilience. Using a longitudinal dataset based on annual public disclosures, we employ data on lending in more than 3,000 United States counties to build analytical visualizations. We provide relevant documentation through spatial statistics for future research on small business lending in underserved nonmetropolitan communities.

Do policies that promote credit access have an impact on targeted borrowers? To address this question, we develop a theoretical model of information production, regulation and bank competition and test its predictions using the Community Reinvestment Act's small businesses lending program. The analysis reveals that, on average, regulation-induced surge of loans leads to an improvement in the credit score of small businesses. However, the effect vanishes in markets with high demand-adjusted bank competition, due to weaker bank incentives for information production. In order to improve credit allocation across all local markets, interventions should also enact policies that lower information costs.

The purpose of this research project is to examine the equity lending practices of unregulated mortgage companies in Boston, Massachusetts from 1985 to 1990. The scope of the inquiry is limited to the lending practices by regulated banks and unregulated mortgage companies in Roxbury, Dorchester and Mattapan from 1985 to 1990. The research is done in response to the so-called second mortgage scam that affected minority residents in Roxbury, Dorchester and Mattapan. To review these lending practices, four major questions are answered in this report. The questions are: 1) What are the lending patterns of Boston's major banks in Roxbury, Dorchester and Mattapan? 2) What finance structure enables unregulated mortgage companies to operate? 3) Who are the unregulated lenders in violation of established lending standards, and in what neighborhoods do they operate? 4) What efforts are being made at a city and state level to promote industry standards and prevent future foreclosures? The research indicates that Boston's regulated banks have redlined the areas of Roxbury, Dorchester and Mattapan, creating a demand for home mortgage and home improvement financing that was met by unregulated lenders. Some of the unregulated mortgage companies, particularly the Resource Companies, have packaged loan products that are very burdensome to the borrowers. The consequence to homeowners for borrowing from these companies was often foreclosure. The key findings of this report are as follows: • Boston's major banks have redlined Roxbury, Dorchester and Mattapan. • There was a disproportionate amount of loans contracted by homeowners with unregulated mortgage companies in Roxbury, Dorchester and Mattapan. • Available information on interest rates and terms of loans from some unregulated mortgage companies operating in Roxbury, Dorchester and Mattapan were usurious (in excess of 30-percent). • The foreclosure rate on properties with a mortgage company claim was 42.2 percent. Another 27.9 percent were at risk of foreclosure. These figures are based on the review of Suffolk County Registry of Deeds records of 660 properties in Roxbury, Dorchester and Mattapan. • This practice cheats the homeowners of the equity they have built in their homes, and has a destabilizing effect on the neighborhoods. City officials and community leaders are seeking remedies to the situation. Their efforts included regulating mortgage companies in Massachusetts as of January 1, 1992; imposing a moratorium on foreclosures to provide an opportunity to review the loan agreements; and establishing a multi-million fund for the purposes of providing home mortgage and home improvement financing in Roxbury, Dorchester and Mattapan. While these remedies provide short-term solutions to the problem, the structure of the banking industry might promote such lending practices over the long-term. Long-term solutions, such as strict enforcement of the Community Reinvestment Act, need to be addressed to prevent this situation in the future.

Lessons from history show that those who are most disadvantaged before a disaster are likely to be most vulnerable during a disaster as well as on the road to recovery. As the novel coronavirus continues to spread, we are witnessing heavy impacts on low- and moderate-income communities as small businesses shutter, workers are laid off, and more and more households find themselves in unexpected financial circumstances. Low-income individuals and households are more vulnerable to illness and potential economic disruption for a variety of reasons, including lower availability of paid sick leave and ability to work from home, less wealth or savings to dip into in case of emergency, higher transmissibility due to larger household sizes, greater social interaction between the young and elderly, higher likelihood of underlying health conditions and weakened immune response due to toxic stress, and lack of health insurance to cover the cost of preventive doctor visits and prescriptions. Banks play a key role in helping to alleviate the economic impacts of COVID-19 and have been encouraged to leverage their Community Reinvestment Act (CRA) activities in their response, as described in this interagency guidance from the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency. In the early days following the spread of COVID-19, the Federal Reserve Bank of San Francisco sought to understand bank response in order to share emerging and best practices for greater scale and impact across the field. For this research brief, we conducted semi-structured interviews with community development officers across financial institutions in the Twelfth Federal Reserve District, collected additional responses via email, and examined a subset of online resources posted by banks to get a pulse on the early response of CRA-motivated institutions.1 We asked about changes to lending, services, and investments, whether the recent CRA guidance had spurred any changes to the ways banks were operating, how banks were prioritizing growing need, and ways banks were being responsive to evolving community conditions. We found that in the short weeks following spread of COVID-19 in the United States, community development officers are involved in immediate response, including implementing operational changes and giving to local nonprofit organizations to address basic needs in their communities. Many respondents are leveraging existing relationships with community partners to better understand short- and longer-term need. Overall, we found that while many are eager to support communities in need, many others are hesitant to take action in the short term in the midst of such uncertainty. While many expressed eagerness for more innovation and adoption of new approaches, these approaches are still emerging. Below we explore these themes in greater detail.

Banks in the United States originate $100 billion in community development loans every year and hold a similar amount of community development investments on their balance sheets. A number of federal place-based policies encourage the provision of these loans and investments to promote growth, employment and the availability of affordable housing to disadvantaged communities. Research into the effectiveness of privately supplied community development financing has been hampered, however, by the lack of comprehensive data on banks' community development activities at a local level. Hand collected data from thousands of Community Reinvestment Act performance evaluations fill this gap. Using these data, the effect of the supply of community development funding on local economic outcomes is estimated. Endogeneity of community development financing to local demand factors is addressed, exploiting the fact that banks exhibit fixed tendencies to engage in community development financing across markets. Shifts in the share of local deposit markets toward banks with a greater tendency to supply community development loans are associated with subsequent expansion in total employment and wages paid. Estimates suggest $56,000 in community development lending is required to create one job, on net. There is no measurable effect on the supply of affordable housing or the growth of house prices. Counties experiencing a shift in local deposit market shares toward community development intensive banks were on similar pre-trends as the rest of the country in the years prior to the shift, as measured across a range of economic and credit market outcomes.

This study provides new evidence on the impact of the Community Reinvestment Act (CRA) on mortgage lending by taking advantage of an exogenous policy shock in 2014, which caused significant changes...

We exploit a tightening of anti-money laundering (AML) enforcement that imposed disproportionate costs on small banks to examine the effects of a change in bank composition towards larger banks on real economic outcomes. In response to intensified AML enforcement at the end of 2012, counties prone to high levels of criminal activity in the form of money laundering experience a withdrawal of small banks and increased activity by large banks. This change in bank composition results in an increase in the number of small establishments and real estate prices. Wages and employment increase in the non-tradable sector, consistent with a household demand channel. Increased secured lending through mortgages is one potential driver of this result, whereas lending through the Community Reinvestment Act (CRA) and the Small Business Administration (SBA) are not.

Many countries have regulations that require firms to engage in minimum levels of corporate social (CS) activities in areas such as the environment and social welfare. In this paper, we argue that changes in a firm’s compliance with CS regulations are reflected in its reputation for corporate social responsibility (CSR), which affects the firm’s performance. The performance impacts depend on whether the firm’s CSR reputation in the current and prior periods is positive (i.e., the firm exceeds CS regulations), neutral (the firm meets CS regulations), or negative (the firm fails to comply with CS regulations). Our theoretical framework draws on the reputation literature and on the concepts of recency bias, which weights the present more heavily than the past, and negativity bias, which weights negative assessments more heavily than neutral or positive assessments. We test our hypotheses on a sample of 7317 banks over 1992–2007 where we compare a bank’s return on assets (ROA) with its current and prior compliance ratings under the U.S. Community Reinvestment Act. We find that changes in CSR reputation have predictable, asymmetric, and sizeable impacts on firm performance. For example, for an average bank with $1 billion in assets, gaining a positive CSR reputation translates into a rise in profits of 4.04%; gaining a negative CSR reputation results in a drop in profits of − 7.8%.

This article describes the reemergence, in the wake of the mortgage crisis, of a predatory financial practice in predominantly black neighborhoods in the US: the contract for deed (CFD). The CFD has a notorious urban history; it was a focus of social justice organizing in 1960s Chicago, which helped lay the groundwork for advocacy that culminated in two important laws in the US: the Home Mortgage Disclosure Act of 1975 and the Community Reinvestment Act of 1977. This article places the reemergence of the CFD in the post‐crisis cycle of housing investment and disinvestment, estimates the minimum scale of CFD ownership, and examines the geography of a well‐known CFD seller in the Atlanta area. As policymakers in the US took efforts to restrict predatory lending fueled by private‐label securitization following the subprime crisis, capital markets shifted toward private equity financiers who provided a new supply of lightly regulated capital for urban housing markets. Predominantly black neighborhoods became prey for high‐return schemes meant to extract as much cash flow out of vulnerable residents as possible, offering them the illusion of homeownership. The findings show that the CFD seller focused on black neighborhoods and suggests that its profits from this activity have been quite lucrative. [ABSTRACT FROM AUTHOR]

We estimate the impact of the Community Reinvestment Act (CRA) on small business lending in lower-income neighborhoods. Using 2004–2016 panel data on census tracts, we apply a combined regression discontinuity and fixed effect method. We find that the number of small business loans increases by about 3 to 7 percent and the total dollar amount of small business loans by about 6 to 10 percent in tracts becoming treated by the CRA. The results are robust along many dimensions and suggest that the CRA has a positive impact on access to finance for small businesses in lower income areas.

In this paper, I estimate the impact of the Community Reinvestment Act (CRA) on small business growth in “Low- and Moderate-Income” (LMI) neighborhoods in the United States. Using rich firm-level p...

In this paper, we use geographic and time variation of the Community Reinvestment Act (CRA) small business loans to study the effects of access to capital on small business growth in the USA at the county level. Grounded in theoretical models of imperfect financial markets and entrepreneurship dynamics, we use a panel of 3050 counties over the 1996–2010 period and find that, in general, CRA loans have a statistically significant positive effect on small business growth for the full sample of 3050 counties. This effect holds for different estimation techniques and robustness checks. More importantly, the results hold when we correct for the endogeneity of the CRA loans. The results also hold when the counties are classified into urban, rural, and low and moderate income.

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.

For forty years, the Community Reinvestment Act (CRA) has encouraged U.S. banks to lend to lower-income neighborhoods. Regarding costs, to comply with CRA, banks substitute away from small-business lending to higher income groups and face higher default rates on loans made. Regarding benefits, a large number of Americans have been lifted out of poverty through the CRA small-business lending channel. New jobs in establishments and new entrepreneurships are equally strong mechanisms to alleviate poverty. The incidence of the act is on smaller banks who lend relatively more than larger banks. Taxpayers benefit from lower welfare expenses as poverty declines.

Market share of conforming-size, home purchase mortgage originations has steadily and substantially shifted from banking institutions to nonbank lenders over recent years. In 2017, nonbanks originated more than 1.8 million conventional and FHA purchase mortgages (53% of the market), as compared to 1.4 million by banks. In contrast, nonbanks originated 30% of purchase-money mortgages (by volume) in 2000 and 24% in 2007. Does the declining role of banking institutions imply that the Community Reinvestment Act (CRA) is becoming less relevant to mortgage lending, since only they are subject to the requirements of the CRA? We address this question by exploring the changing composition of home purchase mortgage originations since 2000. We focus on the share of FHA and conforming-sized conventional loans to low- or moderate income households or to finance properties in low- or moderate-income neighborhoods, and provide a more detailed examination of the shifts in market composition than previous studies. Our analysis points to a conclusion that the CRA continues to be relevant to maintaining broad access to mortgage credit. We find that the overall share of loans to low-or moderate-income borrowers has decreased compared to pre-2004, which we view as a reasonable benchmark period. However, this decrease has mostly been offset by an increased share to borrowers (broadly distributed by income) purchasing properties in low- or moderate-income neighborhoods.

The Community Reinvestment Act requires banks to disclose the geographic distribution of their small business lending, which informs the public about their performance in meeting the credit needs of local communities. We investigate whether such disclosures increase public pressure and thus have real effects on reporting banks. We exploit the 2005 reform that exempted the geographic disclosure requirement and thus allowed banks perceiving high disclosure costs to stop doing so. Using a large sample of exempt banks, we find that after the exemption, non-disclosing banks, relative to those that continue to disclose lending distribution, experience a decrease in non-performing commercial loans but not for other types of loans. The decrease is stronger for banks under more scrutiny by community organizations prior to the exemption. Together, the findings suggest an improvement in loan underwriting quality of non-disclosing banks due to reduced public pressure.

Purpose This study aims to identify factors influencing the bank failure rate in the USA over the period from 1970 to 2014 with an emphasis on economic/financial factors on the one hand and on banking legislation on the other hand. Regarding the latter, this study empirically investigates four major banking statutes: the Community Reinvestment Act of 1977; the Depository Institutions Deregulation and Monetary Control Act of 1980; the Federal Deposit Insurance Corporation Improvement Act of 1991; and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. After adopting the technique of generalized method of moments (GMM), a robustness check in the form of autoregressive conditional heteroskedasticity (ARCH) is undertaken. Overall, the estimations imply that the bank failure rate was a decreasing function of the percentage growth rate of real gross domestic product (GDP) and the real interest rate yields on both three-month US Treasury bills and 30-year fixed-rate mortgages and an increasing function of the real cost of funds. In addition, there is strong evidence that the bank failure rate was increased by provisions in the Community Reinvestment Act of 1977 and the Depository Institutions Deregulation and Monetary Control Act of 1980, whereas the bank failure rate was decreased as a result of provisions in the Federal Deposit Insurance Corporation Improvement Act of 1991 and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Finally, there also is evidence that higher federal budget deficits elevated the bank failure rate. Design/methodology/approach After modeling the bank failure rate as a function of financial/economic variables and banking legislation, the times series from 1970 to 2014 is estimated by GMM and then by the ARCH techniques. Findings The results of the GMM and ARCH estimations imply that the bank failure rate in the US was a decreasing function of the percentage growth rate of real GDP as well as the real interest rate yields on both three-month US Treasury bills and 30-year fixed-rate mortgages and an increasing function of the real cost of funds. Furthermore, there is strong empirical support indicating that the bank failure rate was elevated by various provisions in the Community Reinvestment Act of 1977 and in the Depository Institutions Deregulation and Monetary Control Act of 1980, while the bank failure rate was reduced by certain provisions in the Federal Deposit Insurance Corporation Improvement Act of 1991 and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. There also is evidence that higher federal budget deficits increased the bank failure rate. Originality/value This study is the most contemporary (1970-2014) analysis of potential causes of the bank failure rate in the USA. The study also may be the first to apply the GMM and GARCH models to the problem. Also, some interesting policy implications are provided in the Conclusion.

This research explores whether banks strategically leverage regulatory rules for the Community Reinvestment Act that fix a neighborhood's eligibility status over a decade based on a neighborhood's economic trajectory over that decade. Using 2004–2011 Home Mortgage Disclosure Act (HMDA) data, we find that banks approve loans more frequently in those neighborhoods that are most rapidly improving, and that this effect is stronger if the neighborhoods are CRA-eligible low- and moderate-income (LMI) tracts. We find the “moving up” CRA premium ranges in magnitude from a 2 to 13 percent reduction in the likelihood an application is not approved. These results suggest that banks learn which neighborhoods are most rapidly improving and funnel activity to those places to reduce default risk while complying with the fair lending regulation. The results imply a potential unanticipated consequence of the regulation is that it changes the distribution of resources within the target population.

Policymakers tend to focus on federal programs as remedies to poverty. While important, the largest of these programs do not combat poverty’s geographic aspects. The Community Reinvestment Act (CRA) imposes an affirmative obligation on banks to meet the credit needs of low- and moderate-income (LMI) neighborhoods. The act is designed to promote affordable housing and economic development by combating lending discrimination, thereby alleviating poverty and building wealth in LMI areas. Federal CRA exams rate banks on their loans and investments in LMI neighborhoods. By promoting responsible lending, the CRA has increased homeownership and small-business ownership in those neighborhoods. However, the act’s full potential to combat concentrations of poverty has not been realized. This chapter explores how improved examination procedures can make the CRA more effective in promoting integration in gentrifying and distressed neighborhoods and how the CRA can be combined with the US Department of Housing and Urban Development’s recent fair housing rule and other anti-poverty programs to combat concentrations of poverty.

This study provides new evidence on the effectiveness of the Community Reinvestment Act (CRA) on small business lending by focusing on a sample of neighborhoods with changed CRA eligibility status across the country because of an exogenous policy shock in 2013. The results of difference-in-differences analysis provide consistent evidence that the CRA promotes small business lending, especially in terms of number of loan originations, in lower-income neighborhoods. The generally positive effects of the CRA are sensitive to the types of CRA treatment. Losing CRA eligibility status has a relatively larger effect on small business lending activities, while the effects of newly gaining CRA eligibility are less pronounced. The results are fairly robust when alternative sample periods and control groups are used.

Powerful politicians can interfere with the enforcement of regulations. As such, expected political interference can affect constituents’ behavior. Using rotations of Senate committee chairs to identify variation in political power and expected regulatory relief, we study powerful politicians’ effect on consumer lending to communities protected by fair-lending regulations. We find a 7.5% reduction in credit access to minority neighborhoods in states with new committee chairs. Larger reductions occur in Community Reinvestment Act-eligible neighborhoods and when Senators serve on committees that oversee the enforcement of fair-lending laws. Banks headquartered in powerful Senators’ states are responsible for the reduction in credit access.

In this note, we analyze data on small business loan originations collected under the Community Reinvestment Act (CRA) to document heterogeneity in the recovery in small business lending since the financial crisis.

Purpose – The purpose of this paper is to examine whether the underserved area requirements for Fannie Mae and Freddie Mac (the government-sponsored enterprises [GSEs]) and the community needs requirements of the Community Reinvestment Act (CRA) contributed to the house price run-up in the USA. Design/methodology/approach – This paper predicts the incidence of “Rebounds”, which indicate that a mortgage had been previously denied, to provide evidence on whether certain regulations caused excessively risky mortgage originations. As a different lender rejected the loan given the interest rate that they were willing to charge and information on the borrower, a higher incidence of Rebounds provides evidence that lenders were more frequently disagreeing about loans. This can indicate differences in regulatory pressure or oversight across lenders. Findings – This paper provides evidence that the GSEs were purchasing fewer Rebounds directly from lenders. However, evidence suggests that indirectly, the securitization market served as a conduit for Rebounds to the GSEs that needed to satisfy regulatory underserved area requirements. The necessity of complying with the CRA was found to increase Rebounds. Among regulators, the Federal Reserve was found to have been particularly associated with Rebounds. Originality/value – The paper’s contribution comes from linking Rebounds to legislative and regulatory influences. This contributes to the literature on excess credit and fraud, as well as the effect of underserved area requirements and the CRA. Also, this paper adds a new dimension to the literature on securitization, by showing the influence of regulation on the securitization of risky mortgages.

This chapter investigates rural mortgage finance activity and lending institutions using time series analyses from ten years of Home Mortgage Disclosure Act data and regulatory reporting from the Federal Deposit Insurance Corporation, the Federal Reserve and the Office the Comptroller of the Currency. Specific strategies presented from the analyses include expansion and increased inclusion of rural "assessment" areas for financial investment through the Community Reinvestment Act (CRA) and enactment of rural-specific "Duty to Serve" requirements and efforts by Government Sponsored Entities. In the rural-specific components of the plan, the Enterprises are to be rated on the level of Federal Housing Finance Agency activity related to the purchase of loans from low- and moderate-income borrowers in specified "rural areas." The chapter discusses a study which explored a proposal to encourage more community development activity outside of metropolitan areas by changing the CRA low- or moderate-income census tract classification to include outside metropolitan areas experiencing high poverty, high unemployment and population loss.

The incidence of mis-selling, fraud, and poor customer service by retail banks is significantly higher in areas with higher proportions of poor and minority borrowers and in areas where government regulation promotes an increased quantity of lending. Specifically, low-to-moderate-income (LMI) areas targeted by the Community Reinvestment Act have significantly worse outcomes, and this effect is larger for LMI areas with a high-minority population share. The results highlight an unintended adverse consequence of such quantity-focused regulations on the quality of credit to lower-income and minority customers.

This book provides the most comprehensive examination of community reinvestment and fair lending problems and policies currently available. It outlines the history of lending discrimination and redlining in U.S. mortgage and small business lending markets, and documents the persistence of such problems today. The author explains the role that government has played in developing banking and credit markets in the United States, from the creation of Alexander Hamilton's First Bank of the United States to the ongoing support government provides through the subsidization of secondary markets and through maintenance of critical regulatory infrastructure. Immergluck takes issue with those calling for deregulation of financial services - especially in the arena of fair lending and consumer protection - and gives new voice to rationales for social contract policies such as the Community Reinvestment Act. He provides new long-term analysis of the failure of federal bank regulators to enforce the CRA, and also shows how increased community activism and media attention have led to sporadic periods of stronger CRA enforcement. Finally, he recommends a number of policy changes that are needed to modernize the nation's fair lending and community reinvestment laws and make them more relevant for the 21st century.

A number of studies have shown that, as a result of the ambiguity of US legal mandates, organizations have considerable latitude in how they comply with regulations. In this paper, we address how the different agendas of the federal and state governments increase ambiguities in state-firm relations and how states are interested actors in creating opportunities for firms to navigate the federal legislation. We analyze the institutional forces behind bank acquisitions within and across state lines in order to illuminate the ways that US states take advantage of federal ambiguity and are able to shape corporate practices to their benefit. We specifically examine how patterns of bank acquisitions are shaped by the crucial relationship between the federal Community Reinvestment Act (CRA) and a little-understood provision in the federal tax code that is implemented at the state level, the Low-Income Housing Tax Credit (LIHTC). The relationship is complex because, while the federal government uses the CRA to control bank acquisition activity, states promote use of the LIHTC, through which banks can address federal CRA concerns, and thereby promote bank acquisitions in their jurisdictions. Thus, our findings suggest that the implementation of social legislation at one level in a federal regulatory system undermines the mechanisms of social legislation at another level. We use archival research and in-depth interviews to examine the interaction between these institutional processes and formulate hypotheses that predict the ways in which bank acquisitions are constrained by banks’ CRA ratings and the way states in turn help banks overcome their CRA constraints. Quantitative analyses of all bank acquisitions in the United States from 1990–2000 largely support these hypotheses.

Research Summary Payday lenders have become the banker of choice for many residents of poor and working-class neighborhoods in recent years, often trapping the most vulnerable residents in a cycle of debt. The substantial costs that customers of these fringe bankers incur have long been documented and have been the subject of much policy debate as part of the controversy over financial services generally in recent years. Yet there is reason to believe there are broader community costs that all residents pay in those neighborhoods where payday lenders are concentrated, costs which have not yet been recognized or taken into consideration in policy debates. One such cost may be an increase in crime. Social disorganization theory provides reason to expect that where payday lending proliferates, neighborhood crime rates increase. In a study of Seattle, Washington, a city that has seen a typical increase in the number of payday lenders, we find that a concentration of payday lending leads to higher violent and property crime rates, controlling on a range of factors traditionally associated with neighborhood crime. The findings suggest important policy recommendations that could ameliorate these costs. Policy Implications Several steps could be taken by state and federal financial regulatory officials (including legislators and regulators), private industry and nonprofit financial service providers, and law enforcement agencies to help eliminate the predatory practices ofpayday lenders, along with the subsequent community costs, and to provide access to small consumer loans on an equitable basis. Among the steps that could be initiated immediately are the following: 1. Congress could cap the interest rate thatpayday lenders are allowed to charge at 36% as several states have done and Congress did for loans to members of the military and their families; 2. Credit unions could, profitably, offer small loan programs that enable their members to access credit on reasonable terms and to save and accumulate wealth as some community development credit unions are currently doing; 3. Federal banking officials could provide Community Reinvestment Act credit to depository agencies that provide small consumer loans on equitable terms in order to encourage larger lenders to offer such services; 4. Stateandlocalgovernmentscouldenactzoninglawslimitingthenumberanddensity ofpayday lenders as several have already done. 5. Financial service regulators could establish suitability standards requiring lenders to offer only those loans that are in the financial interests of the borrowers and 6. Law enforcement officials could provide additional service in neighborhoods where payday lending outlets are concentrated. There may well be additional community costs that have not been recognized To further understand the range of costs associated with payday lending, we propose the following research agenda. 1. Property values may be adversely affected as crime rates increase and those costs should be estimated; 2. Owners ofpayday lending outlets often reside outside of the neighborhoods in which the businesses are located, resulting in a drain of capital from those areas that should be quantified; 3. The costs in other communities beyond Seattle should be determined; 4. To complement this snapshot of Seattle, longitudinal research should be conducted Access to a wide range of financial services on an equitable basis has become the subject of much policy debate and social science research in recent years. Payday lenders constitute part of a network of fringe bankers that have been concentrated in low-income, minority communities but have begun to spread throughout metropolitan areas. Costs to borrowers have been documented with some precision. But broader community costs have not been subject to scrutiny. That payday lending is associated with crime should, in fact, come as no surprise. How we choose to respond to that connection remains to be determined.

Bank solvency questions and bank failures in the U.S. have become issues of renewed concern in recent years. Given the significance of bank solvency and bank failures for the health and stability of the U.S. economy, it is imperative to have insights into those factors that systematically influence bank failures. Accordingly, this empirical study seeks to identify those factors influencing the bank failure rate in the U.S. over the period 1970 through 2008, with emphasis on: (1) recent major banking statutes, including: the Community Reinvestment Act of 1977, CRA, the Federal Deposit Insurance Corporation Improvement Act of 1991, FDICIA, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, RNIBA, and the Gramm-Leach-Bliley Act, GLB Act; (2) the health of the housing market; and (3) general economic and financial market conditions. The GARCH estimates indicate that FDICIA acted to reduce bank failures, whereas (presumably by increasing competition and/or increasing costs through branch bank expansion) RNIBA induced a net increase in bank failures in the U.S. The GARCH evidence implies that the CRA also led to increased bank failures in the U.S., arguably by exposing banks to greater credit risk. The evidence also indicates that the GLB Act may also have acted to induce more bank failures. Furthermore, a stronger housing market was found to reduce bank failures, whereas a stronger economy as well as more favorable interest rate conditions reduced bank failures.

In the wake of the 2008 global financial crisis, the Community Reinvestment Act (CRA) of 1977 has probably received more media attention in the past 2 years than it garnered cumulatively over the previous 30 years. Numerous conservative pundits and commentators have blamed the CRA for the subprime crisis and the subsequent worldwide financial meltdown. Most social workers are probably unaware that the CRA is probably responsible for more investment, loans, and wealth creation in low and moderate income neighborhoods than any other single piece of federal legislation over the past 40 years. This article highlights the following features about the CRA that social workers need to know: The CRA was created and passed only because of grassroots community organizing; the CRA has been directly or indirectly related to 8 trillion dollars of investments, mortgage, and small business loans in low income neighborhoods since 1977; community organizing has always been the primary enforcement mechanism of the CRA; cont...

We analyze residential mortgage lending by banks in periods surrounding upgrades or downgrades in their ratings under the Community Reinvestment Act (CRA). Empirical results indicate that upgraded banks had higher relative levels of lending than did downgraded banks prior to ratings changes. Additionally, both downgraded and upgraded banks increased lending following implementation of reforms to the CRA in the 1990s, which were intended to more closely align rating assessment with lending outcomes. Little support is provided, on the other hand, for a hypothesis that banks respond to downgrades by increasing lending (despite apparent incentives for them to do so).

Purpose – The purpose of this paper is to determine whether lending qualifying for credit under the Community Reinvestment Act (CRA) is associated with how broadly banks define the assessment areas (AAs) within which they operate. Both are identified as components of performance for purposes of compliance with the CRA.Design/methodology/approach – Regression analysis using a sample of 212 banks, observed in 2006.Findings – Qualifying lending and AA lending are found to be unrelated. This is inconsistent with an ability of banks to gerrymander their AAs in order to tradeoff one regulatory standard against another.Practical implications – Subjectivity inherent in AA delineation does not necessarily mitigate the achievement of regulatory objectives on qualifying lending. This is relevant to the ongoing debate concerning the role of flexibility in financial regulation.Originality/value – This is believed to be the first empirical study on bank‐specific factors associated with AA lending under the CRA.

PurposeThe purpose of this paper is to discuss the key regulatory, market, and political failures that led to the 2008‐2009 US financial crisis and to suggest appropriate recommendations for reform.Design/methodology/approachThe approach is to examine the underlying incentives that led to the crisis and to provide supporting data to support the hypotheses.FindingsWhile Congress was fixing the savings and loan crisis, it failed to give the regulator of Fannie Mae and Freddie Mac normal bank supervisory power. This was a political failure as Congress was using government sponsored enterprise (GSE) resources and the resources of narrow constituencies for their own advantage at the expense of the public interest. Second, in the mid‐1990s, to encourage home ownership, the Administration changed enforcement of the Community Reinvestment Act, effectively requiring banks to use flexible and innovative methods to lower bank mortgage standards to underserved areas. Crucially, this disarmed regulators and the risky mortgage standards then spread to other sectors of the market. Market failure problems ensued as banks, mortgage brokers, securitizers, credit rating agencies, and asset managers were all plagued by problems such as moral hazard or conflicts of interest.Originality/valueThe paper focuses on the political economy reasons for why Congress and US administrations provided these perverse incentives to the GSEs and banks to lower mortgage standards. It also proposes some innovative methods of improving bank regulation that address the regulatory capture problem.

This article uses a unique demonstration program to examine the interaction of CRA-related lending with subprime and FHA lending activity. Specifically, the empirical analysis identifies the extent to which the origination of a CRA mortgage substitutes for FHA and subprime originations during the period 1998–2006. The results suggest that in the years prior to the expansion of the subprime market (1998–2001), the origination of CRA loans carried a small substitution effect with respect to FHA originations, with little to no impact on subprime originations. Conversely, during the years of the subprime industry’s growth (2002–2006), CRA originations substituted at a much higher rate for high-cost originations. These findings are suggestive about the dynamic role of community reinvestment lending within the changing context of the broader mortgage market. To the extent that CRA originations carry lower foreclosure risk than many subprime products, they also carry implications for the extent of neighborhood externalities in the wake of the subprime foreclosure crisis.

Economic growth in the United States has historically bypassed many minorities and low-income communities. Some researchers and community advocates assert that the deterioration of these communities is in part caused by financial institutions' redlining and neglect. To rectify the situation, the government introduced the Community Reinvestment Act (CRA) for the purpose of encouraging banks and saving institutions to become more socially responsible and help meet the credit needs of communities in which they are located. The CRA was the government's response to bank lending discrimination. However, when passing the Act, Congress was equally concerned with reversing or at least halting disinvestment from inner-city communities and in turn revitalizing local economies. Many believe that the availability of credit to establish, refinance, and improve small businesses is critical to the well-being of local communities. Therefore, through the provision of small business loans, the CRA could be envisioned as a catalyst toward achieving that goal. Thus the aim of this paper is to investigate potential relationship between banks' CRA lending activities, and new business start-ups and economic growth in local markets. The paper proposes that new start-ups will have spillover effects that will consequently contribute to community development. After controlling for several potential variables that could have an impact on business start-ups and community developments, the study found a strong positive effect. Beside its social and economic implications, the study also considered policy implications associated with the CRA regulation as a welfare improving initiative in low-income communities. It offers ground for certain government intervention in the loan market. Introduction Many communities in the United States have been plagued with chronic poverty, unemployment, unskilled labor force, high crime rate, and poor infrastructure (Somaya 1996). Their lagging development has had an adverse effect on economic growth (Matasar and Pavelka 2004). Many believe, however, that corporations can play a revitalizing role especially in inner-city communities where exist the greatest concentration of social problems and the greatest proximity to the corporate sector (Porter 1995). One industry that has historically been associated with creating or exacerbating some of these problems is the banking industry (Matasar and Pavelka 2004). Some researchers and community advocates assert that the deterioration of inner cities is in part caused by banks neglecting their local and low-income communities (Canner and Passmore 1995a). In 1977, motivated by mounting concerns and perceived shortfalls in banks' investment in inner-city communities, the government introduced the Community Reinvestment Act (CRA). The Act required all federally regulated banks to demonstrate that they served the convenience and credit needs of their entire communities, including low and moderate-income neighborhoods and minority customers (Johnson and Sarkar 1996). Since its introduction, the CRA has attracted many opponents who criticize it by arguing that it forces banks to engage in unprofitable and unsafe investment practices in order to gain favorable regulatory evaluation (Lacy and Walter 2002; Macey and Miller 1993). However, it has also attracted many supporters who defend it by arguing that the shortage of capital in inner-city neighborhoods is a major stumbling block for any investment activities and cite "redlining" (1) by banks and financial institutions as a significant factor (Etsy 1995; Porter 1995). These supporters consider the CRA a necessary regulation in order to influence banks' services and investment in deteriorating inner-city communities. The above debate about the CRA has been ongoing for the last 30 years. It has been sustained by the differences of opinions regarding the costs and benefits of the regulation (Barr 2005) and exacerbated by the lack of empirical research evaluating its impact (Hylton 2000). …

In light of the blurring between sectors, it is critical not only to understand public organizations, but also to identify factors that contribute to the achievement of public outcomes across sectors. To what extent does organizational “publicness” lend insight to understanding and managing for public outcomes? By integrating the theory of dimensional publicness with recent work on public values, this analysis presents a framework that defines realized publicness as public outcomes predicted in part by institutions embodying public values. Based on insights from neo-institutional theory, managing for public outcomes, or managing publicness, requires attention to the combined effects of regulative, associative, and cultural-cognitive public value institutions. This analysis concludes with a timely application of the realized publicness framework to mortgage lending, demonstrating the importance of conceptualizing influences from diverse types of public value institutions when evaluating a particular initiative, such as the Community Reinvestment Act, and mortgage outcomes.