The Community Reinvestment Act (CRA) and Bank Branching Patterns

34 Pages Posted: 23 Oct 2019

See all articles by Lei Ding

Lei Ding

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Carolina Reid

University of California, Berkeley

Date Written: September 10, 2019

Abstract

This paper examines the relationship between the Community Reinvestment Act (CRA) and bank branching patterns, measured by the risk of branch closure and the net loss of branches at the neighborhood level, in the aftermath of Great Recession. Between 2009 and 2017, there was a larger decline in the number of bank branches in lower-income neighborhoods than in more affluent ones, raising concerns about access to mainstream financial services. However, once we control for supply and demand factors that influence bank branching decisions, we find generally consistent evidence that the CRA is associated with a lower risk of branch closure, and the effects are stronger for neighborhoods with fewer branches, for larger banks, and for major metro areas. The CRA also reduces the risk of net bank losses in lower-income neighborhoods. The evidence from our analysis is consistent with the notion that the CRA helps banks meet the credit needs of underserved communities and populations by ensuring the continued presence of brick-and-mortar branches.

Keywords: Banking industry, Community Reinvestment Act, Branch, Regulation

JEL Classification: G21, G34, L10

Suggested Citation

Ding, Lei and Reid, Carolina Katz, The Community Reinvestment Act (CRA) and Bank Branching Patterns (September 10, 2019). FRB of Philadelphia Working Paper No. 19-36. Available at SSRN: https://ssrn.com/abstract=3474360 or http://dx.doi.org/https://doi.org/10.21799/frbp.wp.2019.36

Lei Ding (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Carolina Katz Reid

University of California, Berkeley ( email )

312 Wurster Hall #1850
Berkeley, CA 94720-1850
United States
510-604-0790 (Phone)

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