The Community Reinvestment Act and Targeted Mortgage Lending


  • The authors acknowledge very helpful comments from Debbie Lucas and Allen Berger (the editors) and anonymous referees. They also thank Bob Avery, Harold Black, Raphael Bostic, Eli Brewer, Paul Calem, Glenn Canner, Nicola Cetorelli, Bob DeYoung, Evren Ors, Wayne Passmore, Harry Pestine, Alicia Williams, and seminar/conference participants at the Federal Reserve Bank of Chicago, the Conference on Bank Structure and Competition, the Southern Finance Association meetings, and the Western Economic Association meetings for constructive comments on earlier drafts. The views expressed are those of the authors and do not necessarily reflect the views of the aforementioned, the Federal Reserve Bank of Chicago, or the Federal Reserve System.


We analyze residential mortgage lending by banks in periods surrounding upgrades or downgrades in their ratings under the Community Reinvestment Act (CRA). Empirical results indicate that upgraded banks had higher relative levels of lending than did downgraded banks prior to ratings changes. Additionally, both downgraded and upgraded banks increased lending following implementation of reforms to the CRA in the 1990s, which were intended to more closely align rating assessment with lending outcomes. Little support is provided, on the other hand, for a hypothesis that banks respond to downgrades by increasing lending (despite apparent incentives for them to do so).