Community reinvestment after financial modernization an analysis of small business lending.

摘要

This paper examines whether or not community reinvestment, in the form of small business lending as required by the Community Reinvestment Act (CRA), in low to moderate income (LMI) communities significantly improved in the years following the enactment of the Gramm-Leach-Bliley Act (GLBA) of 1999. Throughout the years, the CRA has undergone several regulatory changes designed to strengthen the evaluation process of financial institutions covered by the Act. These changes to the CRA such as those provisions created by the GLBA provide a great opportunity to evaluate the impact of the CRA post and pre-regulatory changes. Researchers have primarily focused on comparing the lending activity of CRA-covered and non-covered financial institutions in order to evaluate the impact of the CRA. Few researchers have focused on the impact of policy changes on improving the effectiveness of the CRA. Using a cross-sectional and panel analysis of CRA small business loan data I compare loan activity in the years prior to GLBA (1997-1999) and after GLBA (2000-2004). The results of my analysis indicate that contrary to my hypothesis, after the passage of the GLBA, LMI communities did not experience a statistically significant increase in lending. There are several limitations in interpreting these results related to data and controls available. Despite this, these results may indicate a need to redesign the CRA to keep pace with the evolving financial services industry and needs of LMI communities.