Bridging the Gap? Government Subsidized Lending and Access to Capital

Cortés, Kristle Romero; Lerner, Josh

doi:10.2139/ssrn.1938686

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Bridging the Gap? Government Subsidized Lending and Access to Capital

48 Pages Posted: 4 Oct 2011 Last revised: 8 Nov 2012

See all articles by Kristle Romero Cortés

Kristle Romero Cortés

UNSW Australia Business School, School of Banking and Finance

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Private Capital Research Institute

Date Written: October 4, 2011

Abstract

The consequences of providing public funds to financial institutions remain con- troversial. We examine the Community Development Financial Institution (CDFI) Fund’s impact on credit union activity, using hitherto little studied U.S. Treasury data. The CDFI Fund grants increase lending at credit unions by 3%. For every dollar awarded, 45 additional cents are loaned out to borrowers in the first year, and up to an additional $1.60 is loaned out within three years. Delinquent loan rates also increase slightly. Our panel results are supported by a broadband regression discontinuity analysis. Politics does not seem to play a role in allocating funding.

Keywords: CDFI, credit supply, loan demand, loan growth, loan loss, political connection

JEL Classification: G28

Suggested Citation: Suggested Citation

Cortés, Kristle Romero and Lerner, Josh, Bridging the Gap? Government Subsidized Lending and Access to Capital (October 4, 2011). Available at SSRN: https://ssrn.com/abstract=1938686 or http://dx.doi.org/10.2139/ssrn.1938686