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Tuesday, December 11, 2012

'What Does the New CRA Paper Tell Us?'

Mike Konczal:

What Does the New Community Reinvestment Act (CRA) Paper Tell Us?, by Mike Konczal: There are two major, critical questions that show up in the literature surrounding the 1977 Community Reinvestment Act (CRA).
The first question is how much compliance with the CRA changes the portfolio of lending institutions. Do they lend more often and to riskier people, or do they lend the same but put more effort into finding candidates? The second question is how much did the CRA lead to the expansion of subprime lending during the housing bubble. Did the CRA have a significant role in the financial crisis?   There's a new paper on the CRA, Did the Community Reinvestment Act (CRA) Lead to Risky Lending?, by Agarwal, Benmelech, Bergman and Seru, h/t Tyler Cowen, with smart commentary already from Noah Smith. (This blog post will use the ungated October 2012 paper for quotes and analysis.) This is already being used as the basis for an "I told you so!" by the conservative press, which has tried to argue that the second question is most relevant. However, it is important to understand that this paper answers the first question, while, if anything, providing evidence against the conservative case for the second. ...
"the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis." ...

    Posted by on Tuesday, December 11, 2012 at 09:42 AM in Academic Papers, Economics, Financial System | Permalink  Comments (8)



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