Returns to Community Lending
42 Pages Posted: 11 Apr 2019 Last revised: 29 Jan 2021
Date Written: January 28, 2021
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: Suggested Citation