Community Reinvestment Research Articles

A new coat of paint: The bluewashing of justice reinvestment and realignment to community reinvestment

AbstractJustice reinvestment has been hailed as a solution to mass incarceration across the United States for nearly 20 years. It suggests that inefficiencies in the criminal justice system can be eliminated to reinvest money in high‐incarceration communities to reduce the correlates of crime. However, the implementations have focused on reinvesting criminal justice funds back into public safety, which has led to the “bluewashing” of justice reinvestment. Introduced here, bluewashing occurs when a justice agency that has historically poor social justice performance communicates positive justice performance after implementing a theoretically supported reform in name only. In actuality, the reform has been modified to suit their own continuance. A realignment of the logic and theoretical support of justice reinvestment is critical to produce reforms that can provide relief for states, agencies, and citizens that are promised by justice reinvestment. This work directly connects the justice reinvestment thesis with the spatial interconnectedness of poverty, education, employment, and housing with crime and recidivism. It argues that justice reinvestment is a crime prevention policy that can simultaneously reduce mass incarceration and empower millions of American citizens living in the United States' most brutal conditions.

Small business lending and the bank-branch network

I examine the role of bank’s distance to the borrower and the proximity of other lenders for the transmission of financial shocks across the bank network. I use a novel dataset of small business lending based on information from the Community Reinvestment Act, which measures lending at census tract groups within each county and yields rich variation in the bank–borrower and borrower–competitor distance. I document that small banks with increased liquidity from proximity to local oil booms, originate more loans to firms far from these booms, and lenders with above-average geographic exposure to residential booms reduce lending in census tract groups with stable house prices. Bank–borrower distance is important for credit expansions, with closer firms receiving more credit, but not for contractions. Proximity of competitors plays a key role: consistent with theoretical predictions, both credit expansions and contractions disproportionately affect markets where the bank faces higher competition.

Does the Community Reinvestment Act Improve Consumers’ Access to Credit?

Does the Community Reinvestment Act Improve Consumers’ Access to Credit?

Does the Community Reinvestment Act Improve Consumers’ Access to Credit?

Does the Community Reinvestment Act Improve Consumers’ Access to Credit?

LIVING IN HISTORICALLY REDLINED NEIGHBORHOODS AND ACCELERATED BIOLOGICAL AGING AMONG OLDER ADULTS

Abstract Various neighborhood factors, including greenspace availability and neighborhood socioeconomic disadvantage, are associated with accelerated biological age (aging faster than expected based on chronological age) among older adults. Neighborhoods, however, evolve overtime and historical neighborhood conditions may be influential in the aging process of older residents. In the United States, many neighborhoods were impacted by historical redlining (a federally sponsored, discriminatory program targeting communities of color throughout the 1930s), wherein neighborhoods received grades based on demographics and quality of infrastructure. Overwhelmingly, neighborhoods with more residents of color were considered less desirable or “redlined” and prior research links living in historically redlined neighborhoods to poor health across the life course and worse neighborhood conditions. We link data on redlining of U.S. census tracts from the National Community Reinvestment Coalition (NCRC) to the 2016 Health and Retirement Study Venous Blood Study (HRS-VBS) to assess whether living in historically redlined neighborhoods is associated with advanced biological aging among adults aged 55 and older. Our indicator of expanded biological age is a summary measure of 22 biomarkers associated with cardiovascular, immune, and metabolic functioning. Using multivariate linear regression models controlling for an individual’s age, sex, and race/ethnicity, we found that individuals living in neighborhoods historically designated as “declining” or “hazardous” were about 2 years older biologically than individuals living in neighborhoods designated as “best/desirable”. These findings suggest that residing in neighborhoods differentially shaped by historical forces impacts rates of accelerated aging. Identifying these historical neighborhood conditions may help target interventions addressing disparities in aging.

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.

Community reinvestment challenges in the age of gentrification: Pittsburgh, Pennsylvania as a case study for wide bank lending disparities

Abstract Racially unequal home mortgage loan patterns are alive and well today with many financial institutions. Efforts to change these trends are difficult when few question the ‘reinvestment thesis’—an environment in which financial institutions are assumed to meet community needs, even when data suggest the opposite. In this article, we analyze thirteen years of financial institution lending data from 2007 to 2019 in Pittsburgh that show how the city’s African American neighborhoods are starved for private capital as vastly more loans and loan dollars were approved in white neighborhoods. Conversely, an analysis of public expenditures for affordable housing between 2010 and 2020 demonstrate the majority of government dollars went to minority neighborhoods. These data provide a partial explanation as to why Pittsburgh lost > 10,000 Black residents over the past decade. These wide disparities are a significant barrier to building African American wealth and present challenges to community development efforts.

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.

Color lines: Disparities in pharmacy treatment, education, and practice

Color lines: Disparities in pharmacy treatment, education, and practice

The Social Externalities of Bank Disclosure Regulation: Evidence from the Community Reinvestment Act

The Social Externalities of Bank Disclosure Regulation: Evidence from the Community Reinvestment Act

A Critical Jeffersonian Mind for a Community Reinvestment Bind

A Critical Jeffersonian Mind for a Community Reinvestment Bind

The Impact of Peer-to-Peer Lending on Small Business Loans

We investigate the impact of peer-to-peer lending on the small business loans originated by US depository institutions that are subject to the Community Reinvestment Act. We present a model where a borrower can choose between a traditional bank and a crowdlending platform and show that the entry of crowdlending can induce a switching effect as well as a credit expansion effect. Using the staggered entry of LendingClub across states between 2009 and 2017, we find that the platform entry reduced the small business loans originated by banks, in particular, in the low- or moderate-income tracts as well as in the distressed middle-income tracts with a high poverty rate. A conservative estimate suggests that the crowdlending entry may have reduced the aggregate lending volume to small businesses.

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.

The deposits channel revisited

SummaryDrechsler et al. (2017) present a novel reformulation of the bank lending channel of monetary transmission based on market power in local deposits markets, which they term the deposits channel. In this paper, we first perform a successful narrow replication of their key empirical results. We then revisit their results on lending in two ways. First, recent studies have pointed out the unique dynamics of credit card loans in Community Reinvestment Act loan origination data. When accounting for this heterogeneity, we find key results are sensitive to the inclusion of credit card banks that raise funds outside of local deposit markets. Second, we show that inconsistencies with related empirical studies can be explained by differences in market power measure, sample period, and the inclusion of alternative control variables. The results highlight that market power on opposing sides of bank balance sheets can impact monetary transmission through alternative channels. Overall, this paper suggests the mechanisms underlying the response of lending to monetary policy remains an important open question.

The Current Community Context of Overdose Deaths: Relations among Drug Types, Drug Markets, and Socioeconomic Neighborhood Characteristics1

Increases in opioid overdose deaths have been pronounced throughout the nation. The current narrative about them stresses their reach into middle‐class America while theories that link substance use etiology and drug markets, such as availability‐proneness theory, suggest that lower‐income communities should be most impacted. The latter might be especially true due to the increased involvement of cheap and highly potent fentanyl. This study uses group‐based multi‐trajectory models and path analysis to assess relations among neighborhood opioid‐overdose death trends, drug type compositions, and socioeconomic neighborhood characteristics across Delaware from 2013 to 2017. We find support for availability‐proneness theory, insofar as drug availability and substance use are associated with neighborhoods in the trajectory groups with the highest overdose death rates. Moreover, we find that neighborhood disadvantage is associated with increased drug availability as well as substance use. Our results also suggest that open‐air drug market access might be associated with an increased risk of fentanyl and heroin exposure which, in turn, can lead to spikes in overdoses net of other risk factors. Overall, our findings reveal the social character of the opioid epidemic and inform the literature on social inequality and drug use. We highlight the need for community reinvestment and harm reduction strategies to alleviate the drug problems in the most disadvantaged communities.