Finance and Economics Discussion Series (FEDS)
March 1997
The Community Reinvestment Act and the Profitability of Mortgage-Oriented Banks
Glenn Canner and Wayne Passmore
Abstract:
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.
Full paper (176 KB Postscript)Keywords: CRA, mortgages, banking, profit
PDF: Full Paper
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