A number of researchers have recently questioned whether the Community Reinvestment Act is still needed. In addition, economic analysis has explored the efficiency of many regulations, but not the CRA. This article seeks to address both issues to shed light on the necessity and efficiency of the CRA. On the basis of data from a survey on the performance and profitability of CRA-related lending activities, the authors reach three main conclusions. First, consistent with the view that the CRA is needed, they we find evidence that the majority of surveyed institutions engaged in some lending activities that they would not otherwise have done in the absence of the law. Second, in terms of efficiency, the results are mixed: The vast majority of institutions increased credit flows profitably, but a significant minority incurred costs, albeit small ones. Third, quantitative evidence suggests that marginal CRA-related lending tended to be small.

This article would be of interest to affordable housing advocates, community development lenders, intermediaries, policy-makers, and banking regulators.

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