Returns to Community Lending

54 Pages Posted: 11 Apr 2019 Last revised: 9 Jun 2020

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: June 7, 2020

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 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

Chakraborty, Indraneel and Chhaochharia, Vidhi and Hai, Rong and Vatsa, Prithu, Returns to Community Lending (June 7, 2020). 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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