Does the Community Reinvestment Act Influence Lending? An Analysis of Changes in Bank Low-Income Mortgage Activity
Drew Dahl, Douglas D. Evanoff, Michael F. Spivey
Anecdotal evidence that the Community Reinvestment Act (CRA) influences the lending behavior of financial institutions has not been uniformly supported by empirical research. We revisit this issue by evaluating changes in low-income mortgage lending at commercial banks over the 1992 –96 period. Our empirical results fail to support a hypothesis that banks respond to public and regulatory pressure exerted as a result of a downgrade in CRA rating by increasing low-income mortgage lending. The findings are consistent with the contention that during this period regulators stressed adjustments in the lending process of banks (e.g., documentation of lending programs and efforts directed at targeted markets) more than lending performance. The findings underscore the importance of regulatory efforts made later in the decade to more closely link enforcement of the CRA to lending outcomes.
