The Community Reinvestment Act (CRA) and Bank Branching Patterns

Lei Ding and Carolina K. Reid

Housing Policy Debate, 2020, vol. 30, issue 1, 27-45

Abstract: This article examines the relationship between the Community Reinvestment Act (CRA) and bank branching patterns, measured by the risk of branch closure and the net loss of branches at the neighborhood level, in the aftermath of the Great Recession. Between 2009 and 2017, there was a larger decline in the number of bank branches in lower income neighborhoods than in more affluent ones, raising concerns about access to mainstream financial services. Once we control for supply and demand factors that influence bank branching decisions, we find evidence that the CRA is associated with a lower risk of branch closure, and that the effects are stronger for neighborhoods with fewer branches, for larger banks, and for major metropolitan areas. The CRA also reduces the risk of net bank losses in lower income neighborhoods. The evidence from our analysis is consistent with the notion that the CRA helps banks meet the credit needs of underserved communities and populations by ensuring the continued presence of brick-and-mortar branches.

Date: 2020
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DOI: 10.1080/10511482.2019.1665836

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