Community Reinvestment Act Research Articles

Collaborative Strategies For Promoting Economic Empowerment

This article explores the role of strategic partnerships in ensuring economic empowerment, particularly within underserved communities and small businesses in the U.S. It explains the importance of collaboration among financial institutions, community organizations, and government agencies as a means to promote financial inclusion and stimulate economic development. Through the analysis of successful case studies, such as the Community Reinvestment Act (CRA) and Financial Empowerment Centers (FECs), the article identifies core components essential for building effective partnerships, including shared goals, trust, clear roles, and strong monitoring frameworks. It offers a comprehensive roadmap for developing and implementing collaborative programs that emphasize the importance of needs assessment, securing resources, and measuring impact. The article studies the indispensable nature of these partnerships in overcoming systemic barriers and driving sustainable economic empowerment. Finally, it calls for ongoing research and innovation in partnership models to adapt to evolving challenges and opportunities in the financial inclusion platform.

Reexamining the 'Role of the Community Reinvestment Act in Mortgage Supply and the U.S. Housing Boom'

Concerns have lingered since the 2007 subprime crisis that government housing policies promote risky mortgage lending. The first peer-reviewed evidence of a causal effect was published by the Review of Financial Studies in a paper (Saadi, 2020) linking the crisis to changes in the Community Reinvestment Act (CRA) in 1995. A review of that paper, however, shows that it misrepresents the policy changes as having taken effect in mid-1998, 2.5 years after they were implemented. When the correct timing is used, a similar analysis yields no evidence of a relationship between CRA and riskier mortgage lending. Instead, the results are shown to reflect an unrelated confounding event, the first collapse of the U.S. subprime mortgage market following Russia’s debt default in August 1998.

Unravelling the impact of the Community Reinvestment Act on SBA lending: Insights from a regression discontinuity design analysis

ABSTRACT This study investigates the influence of the Community Reinvestment Act (CRA) on Small Business Administration (SBA) lending in various U.S. urban areas. Focusing on central cities, inner-ring, and outer-ring suburbs across seven major metropolitan statistical areas, it employs a regression discontinuity design to analyze CRA’s effect on neighborhoods with median family incomes at or below 80% of the area’s median. Results show that CRA significantly increases SBA lending in inner-ring suburbs but not in central cities or outer-ring suburbs, indicating a geographically varied impact. This research underscores the spatial differences in CRA’s effectiveness, suggesting a need for more tailored strategies to improve SBA lending in diverse urban settings.

Recent Innovations in Reducing Home Energy Costs and Improving Resilience for Low- and Moderate-Income Renters and Homeowners

Community Development (CD) practitioners across the western U.S. are engaging in new efforts to reduce energy costs and improve resilience for low- and moderate-income (LMI) communities and other populations that face barriers to economic participation and household financial stability. Energy costs and resilience are factors in housing stability, which impacts economic participation. New federal and state funding sources, as well as growing involvement from philanthropy and Community Reinvestment Act (CRA)-motivated investors, have prompted growth in energy cost savings and resilience (ECSR) options for LMI households. To help scale this work, CD practitioners are experimenting with partnerships—between workforce development providers and employers, mission-driven lenders and nonprofits, state government and utilities, retrofit companies and the public sector, state government and municipalities, to name a few. These partnerships have led to innovations in lending (for homeowners, renters, and landlords), technical implementation of retrofits, coordination across programs, consumer protection, workforce development, and technical assistance (TA) for CD practitioners. This brief provides descriptive findings from focus groups and interviews about ESCR-related work in the CD field and discusses takeaways for policy and practice.

Recent Innovations in Reducing Home Energy Costs and Improving Resilience for Low- and Moderate-Income Renters and Homeowners

Community Development (CD) practitioners across the western U.S. are engaging in new efforts to reduce energy costs and improve resilience for low- and moderate-income (LMI) communities and other populations that face barriers to economic participation and household financial stability. Energy costs and resilience are factors in housing stability, which impacts economic participation. New federal and state funding sources, as well as growing involvement from philanthropy and Community Reinvestment Act (CRA)-motivated investors, have prompted growth in energy cost savings and resilience (ECSR) options for LMI households. To help scale this work, CD practitioners are experimenting with partnerships—between workforce development providers and employers, mission-driven lenders and nonprofits, state government and utilities, retrofit companies and the public sector, state government and municipalities, to name a few. These partnerships have led to innovations in lending (for homeowners, renters, and landlords), technical implementation of retrofits, coordination across programs, consumer protection, workforce development, and technical assistance (TA) for CD practitioners. This brief provides descriptive findings from focus groups and interviews about ESCR-related work in the CD field and discusses takeaways for policy and practice.

Private Bank Public Values and Priorities Under the Community Reinvestment Act

The Community Reinvestment Act (CRA) requires banks to grant low-income communities access to credit. Federal agencies monitor CRA activity and rate banks on compliance. As an economic development tool, the CRA supports private investment of public outcomes. This paper uses qualitative content analysis to examine bank and nonprofit comments regarding proposed CRA rule changes and bank shareholder reports through the lens of the realized publicness framework, to explore how banks express public values. This study finds that banks espouse public values, but that the context of those values is not aligned with community nonprofit values.

Linkages between regional characteristics and small businesses viability

Our study identifies regional traits associated with small business viability, paying particular attention to bank lending to minority-owned firms. Although creditworthy minority business enterprises (MBEs) have less access to bank financing than similar White-owned firms, they have increased their nationwide employee numbers substantially since 2002, more so indeed than White-owned firms. The discouraged borrower incidence among creditworthy MBEs, nonetheless, is quite high. Given their limited access to financing, the dynamism displayed by these firms is surprising. To link regional characteristics to bank lending policies, local economic well-being measures and racial intolerance levels are used to identify areas where banks participate in Community Reinvestment Act (CRA) agreements, a proxy for their willingness to disregard owner race and firm geographic location when financing firms. We find that regional prosperity is positively linked to CRA agreement presence, while a legacy of institutionalized racism is negatively linked. We next explore whether the presence of local CRA agreements is linked to relatively fewer discouraged small business borrowers. The incidence of creditworthy borrowers discouraged from seeking bank financing drops significantly when CRA agreements are present locally.

“Bouncing Forward” from Disasters on Hawaiʻi’s Big Island: Lessons for Equitable Recovery and Future Resilience

Recovery planning and implementation on the island of Hawaiʻi following a federally declared disaster provides an example of equitable, forward-looking disaster preparation and resilience. Community development professionals in other geographies can learn from the way planners and nonprofits used a regional equity approach to improving household and community resilience, broke down silos to have flexible funding from multiple sources ready for future disasters, and worked to build community through “resilience hubs” that provide disaster-related and ongoing services that help promote economic participation. These efforts also provide lessons for potential future Community Reinvestment Act (CRA) activity that helps prepare communities for disasters.

Impact of the Community Reinvestment Act on small business employment in lower income neighborhoods

This study examines 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 panel data on every U.S. employer, I exploit the sharp threshold cutoff for CRA eligibility and changes in CRA eligibility over time to estimate the effects on business employment. I find that the firms located in the CRA eligible areas increase employment by about 0.8 percent compared to firms in CRA ineligible areas, and the effects are larger for young firms and firms in minority neighborhoods, which potentially face higher credit access barriers, increasing employment by about 1.5 and 1.9 percent, respectively. I also find that increases in lending in the CRA areas are related to the number of banks, implying that the channel offers greater access to finance.

Walking the walk? Bank ESG disclosures and home mortgage lending

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.

Does Giving CRA Credit for Loan Purchases Increase Mortgage Credit in Low-to-Moderate Income Communities?

Under the Community Reinvestment Act (CRA) banks can fulfill their affirmative obligation to meet local credit needs by lending in low-to-moderate-income (LMI) communities or by purchasing loans made by others. This paper evaluates whether giving CRA credit for purchases has had its intended effect of increasing LMI credit availability by making LMI loans more liquid. Analyses using a regression discontinuity design show that CRA increases loan purchases without affecting LMI originations. Instead, banks purchase loans that are temporarily diverted from the Government Sponsored Enterprises, which provides little benefit to the communities the CRA is meant to help.

The Role of Regulation and Bank Competition in Small Firm Financing: Evidence from the Community Reinvestment Act

AbstractThis paper analyzes how regulation that promotes greater access to bank credit, such as the Community Reinvestment Act (CRA), impacts the financing of small firms. It finds that when areas become CRA‐eligible, the likelihood of bank lending to local small firms increases and firms reduce late trade credit payments, consistent with loans allowing small firms to pay trade credit more promptly and avoid late payment fees. The effect is more profound in low‐ and moderate‐income areas where financial constraints are tighter due to low bank competition. The effect is also larger for small firms that operate in trade credit‐dependent industries.

Mortgage Lending, Default, and the Community Reinvestment Act

AbstractThe Community Reinvestment Act (CRA) encourages banks to lend to low‐ and moderate‐income individuals. This paper estimates the effect of the CRA on mortgage lending, exploiting variation in the set of banks whose lending performance is assessed in a given neighborhood due to redefinitions of Metropolitan Statistical Areas in 2003. Incorporating a typical tract into one additional banks' assessment area increased mortgage lending there by approximately 2%. Lending to low‐income borrowers was particularly affected. While income‐conditional default risk was little changed, CRA‐induced loans were riskier than average, due to their borrowers' lower incomes.

Does the Community Reinvestment Act increase lending to small businesses in lower income 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 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.

Does the Community Reinvestment Act (CRA) Promote Small Business Growth in Lower-Income Neighborhood

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 panel data on every U.S. employer, I use two principle identification strategies to estimate the effects on business employment. First, I exploit the sharp threshold cutoff for CRA eligibility based on median family income to use a regression discontinuity design (RDD) in an optimal bandwidth around the cutoff. Second, I exploit changes in CRA eligibility over time using difference-in-differences (DID) with firm fixed effects. Using both RDD and DID, I find that the firms located in the CRA eligible areas increase employment by about 0.8 percent compared to firms in non-CRA areas. The CRA effects are larger for young firms and firms in minority neighborhoods, which potentially face higher barriers to access to credit, increasing employment by about 1.5 and 1.9 percent, respectively. I also find that increases in lending in the CRA areas are related to the number of banks, implying that the channel is greater access to finance.

Local Concentration in the Small Business Lending Market and Its Relationship to the Deposit Market

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Banking the Black Community: An Analysis of Banking Among Baltimore’s Predominately Black Communities

For decades, Baltimore has been negatively impacted by concentrated poverty, high levels of segregation, and crime. But the stereotypes of the city often identified as “Charm City” suffer from a distinct set of initiatives that produce “Banking Deserts” in the city’s predominantly Black neighborhoods. Inadequate access to financial services leaves a community susceptive to predatory lending institutions which only create a cycle of unethical financial service practices. In addition to the lack of financial services, the absence of banking in Black communities restricts access to capital and the overall financial literacy of its residents. This research explores some of the root causes of the city’s racial and social-economic divide through the lens of critical race theory (CRT), as well as analyzes where the city is today. The study looks at historical legislation that caused systematic failure and perpetuated decades of discriminatory practices and the Community Reinvestment Act (CRA) which was designed to address the access challenge in underserved communities. The decades of social inequities in Charm City, have left a social and economic divide in the city, requiring corrective action and aggressive systematic change.

“Don't Know What You Got till It’s Gone”: The Community Reinvestment Act in a Changing Financial Landscape

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 in neighborhoods’ CRA eligibility in the Philadelphia market. The loss of CRA coverage leads to an over 10% decrease in purchase originations by CRA-regulated lenders. While nondepository institutions replace approximately half, but not all, of the decreased lending, their increased market share is accompanied by a greater involvement in riskier and more costly FHA lending. This study demonstrates how different lenders respond to the incentive of CRA credit.

Does the Community Reinvestment Act Increase Small Business Lending in Lower Income 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.

Walking the Walk? Bank ESG Disclosures and Home Mortgage Lending

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 is observed at both the county and census tract level and worsens in disaster areas of severe hurricane strikes. Additional tests indicate no difference in mortgage default rates between high- and low-ESG banks, rejecting an alternative explanation based on differential credit screening quality. 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.