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The Community Reinvestment Act and the profitability of mortgage-oriented banks

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The Community Reinvestment Act (CRA) requires lenders \"to help meet the credit needs of the local communities in which they are chartered, consistent with the safe and sound operation of such institutions.'' For proponents of efficient markets, the CRA is a threat to lender profitability. For others, the CRA has the potential to increase profitability. We examine the relative profitability of commercial banks that specialize in mortgage lending in lower-income neighborhoods or to lower-income borrowers using three different techniques, and find that lenders active in lower-income neighborhoods and with lower-income borrowers appear to be as profitable as other mortgage-oriented commercial banks.

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  • Glenn B. Canner & Wayne Passmore, 1997. "The Community Reinvestment Act and the profitability of mortgage-oriented banks," Finance and Economics Discussion Series 1997-7, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:1997-7
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    Cited by:

    1. Ralph C. Kimball, 1997. "Specialization, risk, and capital in banking," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 51-73.
    2. Drew Dahl & Douglas D. Evanoff & Michael F. Spivey, 2002. "Community Reinvestment Act Enforcement and Changes in Targeted Lending," International Regional Science Review, , vol. 25(3), pages 307-322, July.
    3. Kenneth H. Thomas, Ph.D., "undated". "CRA's 25th Anniversary: The Past, Present, and Future," Economics Working Paper Archive wp_346, Levy Economics Institute.
    4. Drew Dahl & Douglas Evanoff & Michael Spivey, 2003. "The Timing and Persistence of CRA Compliance Ratings," Journal of Financial Services Research, Springer;Western Finance Association, vol. 23(2), pages 113-132, April.
    5. Bostic Raphael & Paulson Anna L & Mehran Hamid & Saidenberg Marc, 2005. "Regulatory Incentives and Consolidation: The Case of Commercial Bank Mergers and the Community Reinvestment Act," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-27, April.
    6. Wendy Edelberg, 2004. "Risk-based Pricing of Interest Rates in Household Loan Markets," 2004 Meeting Papers 442, Society for Economic Dynamics.
    7. Edelberg, Wendy, 2006. "Risk-based pricing of interest rates for consumer loans," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2283-2298, November.
    8. J Neill Marshall, 2004. "Financial Institutions in Disadvantaged Areas: A Comparative Analysis of Policies Encouraging Financial Inclusion in Britain and the United States," Environment and Planning A, , vol. 36(2), pages 241-261, February.

    More about this item

    Keywords

    Bank profits; Community Reinvestment Act of 1977; Mortgages;
    All these keywords.

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    1. Community Reinvestment Act in Wikipedia English

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