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For their helpful comments, the author would like to thank Bob Avery, Raphael Bostic, Glenn Canner, Bob Moore, Ken Robinson, Tom Saving, Nancy Vickrey, and two anonymous referees. The views expressed are those of the author and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or the Federal Reserve System.
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Safety and Soundness and the CRA: Is There a Conflict?
Article first published online: 26 MAR 2007
DOI: 10.1093/ei/40.3.470
Additional Information
How to Cite
Gunther, J. W. (2002), Safety and Soundness and the CRA: Is There a Conflict?. Economic Inquiry, 40: 470–484. doi: 10.1093/ei/40.3.470
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For their helpful comments, the author would like to thank Bob Avery, Raphael Bostic, Glenn Canner, Bob Moore, Ken Robinson, Tom Saving, Nancy Vickrey, and two anonymous referees. The views expressed are those of the author and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or the Federal Reserve System.
Publication History
- Issue published online: 26 MAR 2007
- Article first published online: 26 MAR 2007
- Abstract
- Article
- References
- Cited By
Ordered probit regressions of the supervisory ratings assigned to banks point to a conflict between the credit enhancement objectives associated with the Community Reinvestment Act (CRA) and financial safety and soundness standards. Aggressive banking strategies tend to help CRA ratings but hurt safety and soundness ratings. In addition, banks with financial problems are more likely to receive substandard CRA ratings, even though their condition may require a retrenchment from CRA objectives. Finally, there is some limited evidence to suggest that a greater focus on lending in low-income neighborhoods helps CRA ratings but at the expense of safety and soundness.