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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page 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.

Keywords: CRA, mortgages, banking, profit

Full paper (110 KB PDF) | Full paper (176 KB Postscript)

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Last update: July 16, 1997