Returns to Community Lending
54 Pages Posted: 11 Apr 2019 Last revised: 9 Jun 2020
Date Written: June 7, 2020
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 other income groups and face higher default rates on loans made. Regarding benefits, in recent years, approximately 65 thousand Americans are lifted out of poverty annually through the CRA small-business lending channel. New jobs are a stronger mechanism to alleviate poverty than new entrepreneurships. The incidence of the act is on smaller banks who lend more due to the act. Taxpayers benefit from lower welfare costs as poverty declines.
Keywords: Community Reinvestment Act, Small Business Lending, Poverty Alleviation
JEL Classification: G21, I38
Suggested Citation: Suggested Citation