| Title: |
What
Can Price Theory Say about the Community Reinvestment Act? |
| Author(s): |
Robert L. Lacy and John R. Walter |
| Publication: |
Federal Reserve Bank
of Richmond Economic Quarterly
Spring 2002 |
| Methodology: |
The authors use price theory to
analyze the impact of the Community Reinvestment Act on the pricing
of bank products. CRA requirements are modeled as a requirement to
expand output of one product (loans to low-income individuals and
in low-income areas) in a multi-product firm. |
| Primary conclusions:
|
CRA enforcement requires
some banks to expand their low-income lending to such an extent that
unprofitable loans are likely to be made, creating inefficiencies
in credit markets. |
| The CRA has survived because its
costs are relatively small and can be shifted to banking products
for which there are fewer alternatives offered by banks' competitors. |
|
Factors other than the CRA have contributed
to the attractiveness of low-income lending.
|
| URL: |
http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/spring2002/lacywalter.pdf |
| Bibliography: |
Yes |
| Number of pages: |
27 |
