Branching Out Inequality: The Impact of Credit Equality Policies in the Non-Bank Era 

Abstract

We show that the Community Reinvestment Act (CRA), a major policy aimed at reducing geographic inequality in credit access, can paradoxically widen disparities across regions while enhancing credit equality within certain regions. Banks strategically withdraw branches from lower-income areas to avoid CRA requirements—a response amplified by the expansion of non-bank lenders. We identify banks with higher CRA violation costs using a regression discontinuity design around the CRA eligibility threshold and show these banks retract more branches following non-bank expansion. These branch closures reduce small business lending, financial inclusion, and local economic activity in low-income areas, worsening regional economic disparities.