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Bridging the gap? Government subsidized lending and access to capital

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  • Kristle Romero Cortes
  • Joshua Lerner

Abstract

The consequences of providing public funds to financial institutions remain controversial. We examine the Community Development Financial Institution (CDFI) Fund?s impact on credit union activity, using hitherto little studied U.S. Treasury data. The CDFI Fund grants increase lending at credit unions by 3%. For every dollar awarded, 45 additional cents are loaned out to borrowers in the first year, and up to an additional $1.60 is loaned out within three years. Delinquent loan rates also increase slightly. Our panel results are supported by a broadband regression discontinuity analysis. Politics does not seem to play a role in allocating funding.

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  • Kristle Romero Cortes & Joshua Lerner, 2012. "Bridging the gap? Government subsidized lending and access to capital," Working Papers (Old Series) 1229, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1229
    DOI: 10.26509/frbc-wp-201229
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    1. Alperovych, Yan & Groh, Alexander & Quas, Anita, 2020. "Bridging the equity gap for young innovative companies: The design of effective government venture capital fund programs," Research Policy, Elsevier, vol. 49(10).

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    More about this item

    Keywords

    Credit unions; Loans; Capital;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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