Returns to Community Lending

42 Pages Posted: 11 Apr 2019 Last revised: 29 Jan 2021

See all articles by Indraneel Chakraborty

Indraneel Chakraborty

University of Miami

Vidhi Chhaochharia

University of Miami - Department of Finance

Rong Hai

University of Miami - School of Business Administration - Department of Economics

Prithu Vatsa

University of Miami - Department of Finance

Date Written: January 28, 2021

Abstract

For forty years, the Community Reinvestment Act (CRA) has encouraged U.S. banks to lend to lower-income neighborhoods. Regarding costs, to comply with CRA, banks substitute away from small-business lending to higher income groups and face higher default rates on loans made. Regarding benefits, a large number of Americans have been lifted out of poverty through the CRA small-business lending channel. New jobs in establishments and new entrepreneurships are equally strong mechanisms to alleviate poverty. The incidence of the act is on smaller banks who lend relatively more than larger banks. Taxpayers benefit from lower welfare expenses as poverty declines.

Keywords: Community Reinvestment Act, Small Business Lending, Poverty Alleviation

JEL Classification: G21, I38

Suggested Citation

Chakraborty, Indraneel and Chhaochharia, Vidhi and Hai, Rong and Vatsa, Prithu, Returns to Community Lending (January 28, 2021). University of Miami Business School Research Paper No. 3353786, Available at SSRN: https://ssrn.com/abstract=3353786 or http://dx.doi.org/10.2139/ssrn.3353786

Indraneel Chakraborty (Contact Author)

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
312-208-1283 (Phone)

HOME PAGE: http://sites.google.com/site/chakraborty/

Vidhi Chhaochharia

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Rong Hai

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

HOME PAGE: http://https://sites.google.com/site/ronghaiecon/

Prithu Vatsa

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
(305) 284-9801 (Phone)

HOME PAGE: http://www.bus.miami.edu/academic-programs/doctoral-programs/phd-students/finance/vatsa.html

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