Small Business Lending Under the Community Reinvestment Act

Raphael W. Bostic
University of Southern California

Hyojung Lee
Joint Center for Housing Studies of Harvard University

This article reviews small business lending patterns from 1996 to 2015 and examines the role of the Community Reinvestment Act (CRA) in shaping small business lending patterns. Using the data that have been reported pursuant to the CRA, we observe that the number of small business loans dramatically increased from 1996 to 2015, while the loan volumes remained essentially unchanged, which translates into a significant decline in the size of the average small business loan. Next, using a regression discontinuity design, we seek linkages between changes in small business lending in a census tract during three distinct periods—1996 to 2002, 2003 to 2011, and 2012 to 2015—and that tract’s status as being covered by the CRA. We observe a positive association between small business lending and the CRA from 1996 to 2002 and from 2012 to 2015 and observe a negative association from 2003 to 2011. The findings are consistent with a view that banking institutions strategically respond to the CRA, but that the incentives presented by macroeconomic market conditions can overwhelm any incentives the CRA provides.