NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?

Sumit Agarwal, Efraim Benmelech, Nittai Bergman, Amit Seru

NBER Working Paper No. 18609
Issued in December 2012
NBER Program(s):   AP   CF

Yes, it did. We use exogenous variation in banks' incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.

download in pdf format
   (417 K)

email paper

A non-technical summary of this paper is available in the May 2013 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (417 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18609

Users who downloaded this paper also downloaded these:
Lazear and Spletzer w18386 The United States Labor Market: Status Quo or A New Normal?
Prasad w19668 Distributional Effects of Macroeconomic Policy Choices in Emerging Market Economies
Greenwood, Guner, Kocharkov, and Santos w19829 Marry Your Like: Assortative Mating and Income Inequality
Lagakos, Moll, Porzio, Qian, and Schoellman w18602 Experience Matters: Human Capital and Development Accounting
Friedman and Schwartz Money and Business Cycles
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us