Premium
Safety and Soundness and the CRA: Is There a Conflict?
Author(s) -
Gunther Jeffery W.
Publication year - 2002
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/40.3.470
Subject(s) - soundness , retrenchment , probit model , accounting , actuarial science , economics , point (geometry) , business , econometrics , political science , computer science , geometry , mathematics , public administration , programming language
Ordered probit regressions of the supervisory ratings assigned to banks point to a conflict between the credit enhancement objectives associated with the Community Reinvestment Act (CRA) and financial safety and soundness standards. Aggressive banking strategies tend to help CRA ratings but hurt safety and soundness ratings. In addition, banks with financial problems are more likely to receive substandard CRA ratings, even though their condition may require a retrenchment from CRA objectives. Finally, there is some limited evidence to suggest that a greater focus on lending in low‐income neighborhoods helps CRA ratings but at the expense of safety and soundness.