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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.

We study the impact of the Community Reinvestment Act (CRA) on access to consumer credit since 1999 using an individual-level panel and three distinct identification strategies: a regression discontinuity design centered on a CRA-eligibility cutoff; a comparison of neighboring census blocks; and an event study of changes in eligibility. All three rule out a significant effect of the CRA on consumer borrowing. We show that this is in part explained by a shift in mortgages from nonbanks, which are free from CRA obligations, to banks in need of CRA-eligible mortgages. Our findings underscore the pitfalls of a circumscribed regulatory regime.

Community Banks sind in den USA die weit verbreiteste FDIC (Federal Deposit Insurance Corporation) versicherte Institution und spielen vor allem bei Kreditvergaben im KMU-Bereich und im privaten Sektor eine wichtige Rolle. Sie betreiben für gewöhnlich ihren Bankservice in einer lokalen Gemeinschaft und haben deshalb gegenüber Non-Community Banks einen Vorteil in Bezug auf die Beziehung zu ihren Kunden. Trotzdem sinkt die Anzahl von Gemeindebanken stetig. Daher ergeben sich die 3 Forschungsfragen: 1. Ist die Anzahl an Gemeindebanken zwischen 2003 und 2021 signifikant gesunken? 2. Wie hat sich die Performance von Gemeindebanken vor und nach der Finanzkrise entwickelt? 3. Haben Gemeindebanken eine hohe relative Bedeutung bezüglich des Kreditvergabeprozesses? Welche Folgen entstehen bei einem Rückgang von Community Banks? Um die Forschungsfragen zu beantworten, wird auf bereits bestehende Literatur zurückgegriffen. Das Hauptziel liegt darin, die Literatur auf einen Zusammenhang zwischen Banktypus und Performance zu untersuchen und die Auswirkungen der Finanzkrise auf Community Banks und Non-Community Banks zu analysieren. Zusätzlich werden noch eigene Auswertungen zu aktuellen Zahlen mithilfe von FDIC-Datenreihen diese Arbeit abrunden. Als Ergebnis geht hervor, dass ein kontinuierlicher Rückgang der Gemeindebanken, sowohl auf Filial- aus auch auf Zentralebene in der Zeit von 2003-2021 stattgefunden hat. Die Analyse der Performance kann nicht eindeutig verifiziert werden. Während der Cost-Income Ratio beispielsweise bei Gemeindebanken schlechter war als bei Nicht-Gemeindebanken, gab es beim Return-on-Assets oder der Effizienzquote keine eindeutigen Ergebnisse. Lediglich die Verschuldungsquote war bei Community Banks in der Regel besser, was auf eine Abhängigkeit des Banktypus hindeutet. eingereicht von Lejla Bajrektarevic, BSc Masterarbeit Universität Linz 2023

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 paper studies the role of the Community Reinvestment Act (CRA) in the U.S. housing boom-bust cycle. I find that enhanced CRA enforcement in 1998 increased the growth rate of mortgage lending by CRA-regulated banks to CRA-eligible census tracts. I show that during the boom period house price growth was higher in the eligible census tracts because of the shift in mortgage supply of regulated banks. Consequently, these census tracts experienced a worse housing bust. I find that CRA-induced mortgages were awarded to borrowers with lower FICO scores and were more frequently delinquent.

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.

The Community Reinvestment Act (CRA), enacted in 1977 and the subject of this special issue of Housing Policy Debate, was part of a trilogy of laws in the late 1970s including the Equal Credit Oppo...

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 ...

In two short histories of the independence of the U.S. Federal Reserve Bank since its creation in 1913—the first with respect to the Fed's monetary policymaking, the second focused on its regulatory policymaking—the author shows that the range of the Fed's powers has varied greatly over time, and that changes in those powers have had major effects on the extent of Fed independence. Moreover, the shifts over time in Fed powers reflect, to a significant degree, conscious trade‐offs by Fed leaders. A large number of somewhat surprising Fed positions on important regulatory matters can be explained as more or less deliberate attempts to preserve the Fed's monetary powers from political interference by yielding some of its independence in exercising its regulatory authority. In a case involving one of the most destructive U.S. financial regulatory policies, the Fed's effective neutrality on, and thus failure to support, the elimination of restrictions on interstate branch banking is seen as contributing to the chronic instability of the U.S. banking system, which has suffered some 20 major crises since the early 1800s (as compared to the crisis‐free Canadian system, with its nationwide banking from its inception). The Fed's reluctance to intervene is attributed to its unwillingness to antagonize powerful Congressional supporters of state banking interests and, more generally, to a “game of bank bargains” that can be seen at work in the political economy of virtually all countries. In more recent times, the most costly episode in this time‐honored game features a series of implicit or, in some cases, explicit agreements between large U.S. banks and urban activist groups—under the aegis of the Community Reinvestment Act, and with the oversight and implicit blessing of the Fed—to make on the order of $4.6 trillion loans to “subprime” borrowers in exchange for the activists’ (and the Fed's) support in Congressional merger hearings. The resulting nationwide debasement of mortgage underwriting standards and sheer volume of “toxic assets,” in combination with clearly inadequate capital requirements (which the Fed also failed to correct), are viewed as if not the principal cause of the crisis, a far bigger contributor than, say, the Fed's widely criticized unwillingness to tighten monetary policy in the early 2000s. To prevent the Fed from continuing to sacrifice its independence in regulatory matters to preserve its freedom to conduct monetary policy, the author proposes that authority for regulatory and monetary policy be vested in two separate regulatory bodies. If carried out, such a policy change would enact a proposal made by then Treasury Secretary Hank Paulson in 2008, just before the global financial crisis hit.

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.

Black-owned businesses tend to operate with less finance and employ fewer workers than those owned by Whites. Motivated by a simple conceptual framework, we document these facts and show they are causally connected using large firm-level surveys linked to universal employer data from the Census Bureau. We find that the racial financing gap is most pronounced at start-up and tends to narrow with firm age. At any age, Black-owned firms are less likely to receive bank loans, more likely to refrain from applying because they expect denial, and more likely to report that lack of finance reduces their profitability. Yet the observable characteristics of Black entrepreneurs are similar in most respects to Whites, and in some ways - higher education, growth-oriented motivations, and involvement in the business - would seem to imply higher, not lower, demand for finance. Concerning employment, we find that Black-owned firms have on average about 12 percent fewer employees than those owned by Whites, but the difference drops when controlling for firm age and other characteristics. However, when the analysis holds financial variables constant, the results imply that equally well-financed Black-owned firms would be larger than White-owned by about seven percent. Exploiting the credit supply shock of changing assignment to Community Reinvestment Act treatment through a Regression Discontinuity Design in a firm-level panel regression framework, we find that expanded credit access raises employment 5-7 percentage points more at Black-owned businesses than White-owned firms in treated neighborhoods.

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 4 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.

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.

We study the interaction of search and application approval in credit markets. We combine a unique dataset, which details search behavior for a large sample of mortgage borrowers, with loan application and rejection decisions. Our data reveal substantial dispersion in mortgage rates and search intensity, conditional on observables. However, in contrast to predictions of standard search models, we find a novel non-monotonic relationship between search and realized prices: borrowers, who search a lot, obtain more expensive mortgages than borrowers' with less frequent search. The evidence suggests that this occurs because lenders screen borrowers' creditworthiness, rejecting unworthy borrowers, which differentiates consumer credit markets from other search markets. Based on these insights, we build a model that combines search and screening in presence of asymmetric information. Risky borrowers internalize the probability that their application is rejected, and behave as if they had higher search costs. The model rationalizes the relationship between search, interest rates, defaults, and application rejections, and highlights the tight link between credit standards and pricing. We estimate the parameters of the model and study several counterfactuals. The model suggests that “overpayment” may be a poor proxy for consumer unsophistication since it partly represents rational search in presence of rejections. Moreover, the development of improved screening technologies from AI and big data (i.e., fintech lending) could endogenously lead to more severe adverse selection in credit markets. Finally, place based policies, such as the Community Reinvestment Act, may affect equilibrium prices through endogenous search responses rather than increased credit risk. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

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.