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Winter 2004, The Impact of CRA Agreements on Community Banks

Raphael W. Bostic and Breck L. Robinson
Concerns about equal access to mortgage credit have led to the passage of many laws whose goal is its promotion. One important example is the Community Reinvestment Act of 1977 (CRA), which directs the federal banking regulators to encourage financial institutions to provide services to their entire service areas. In response to the incentives laid out by the CRA, many banks have entered into CRA agreements, which are arrangements, often formally established with community-based organizations, in which lenders pledge to extend a certain volume of loans to targeted groups and communities.2 Evidence suggests that CRA agreements have been effective in promoting an increased flow of mortgage credit to lower-income and minority communities by the institutions involved in the agreements (Schwartz, 1998b) and by all lenders considered together (Bostic and Robinson, 2003).