Year Published
2002
Abstract
Lenders have increasingly responded to regulatory and public pressures to provide
credit to lower-income and minority communities by entering into CRA agreements,
which typically involve pledges to extend a certain volume of lending to targeted groups
and communities. This paper considers the broader impact of these CRA agreements by
examining whether they are associated with changes in lending to lower-income and
minority communities in the markets where they are initiated. Using a speciallyconstructed panel of counties that includes information on CRA agreements provided by
the National Community Reinvestment Coalition, we find the number of newly-initiated
CRA agreements in a county to be associated with significant increases in CRA,
minority, and overall conventional mortgage lending in a county over a 3-year period.
The results are consistent with the view that the increases in lending represent new
lending, with some evidence suggesting the increases in lending are relatively short-lived.
No comparable relationships are observed between CRA agreements and changes in
government-backed lending. Overall, the results are consistent with the notion that
lenders view CRA agreements as a form of insurance against the potentially large and
unknown costs associated with fair lending violations, poor CRA performance ratings,
and adverse publicity from CRA-related protests of mergers or other applications. The
results are also consistent with the view that the effectiveness of CRA agreements in
increasing lending activity is ultimately determined by the persistence and sophistication
of community groups in monitoring compliance with CRA agreements.
credit to lower-income and minority communities by entering into CRA agreements,
which typically involve pledges to extend a certain volume of lending to targeted groups
and communities. This paper considers the broader impact of these CRA agreements by
examining whether they are associated with changes in lending to lower-income and
minority communities in the markets where they are initiated. Using a speciallyconstructed panel of counties that includes information on CRA agreements provided by
the National Community Reinvestment Coalition, we find the number of newly-initiated
CRA agreements in a county to be associated with significant increases in CRA,
minority, and overall conventional mortgage lending in a county over a 3-year period.
The results are consistent with the view that the increases in lending represent new
lending, with some evidence suggesting the increases in lending are relatively short-lived.
No comparable relationships are observed between CRA agreements and changes in
government-backed lending. Overall, the results are consistent with the notion that
lenders view CRA agreements as a form of insurance against the potentially large and
unknown costs associated with fair lending violations, poor CRA performance ratings,
and adverse publicity from CRA-related protests of mergers or other applications. The
results are also consistent with the view that the effectiveness of CRA agreements in
increasing lending activity is ultimately determined by the persistence and sophistication
of community groups in monitoring compliance with CRA agreements.
Research Category