Economic Quarterly

Spring 1995

Neighborhoods and Banking

Jeffrey M. Lacker

Federal banking agencies recently revised the regulation implementing the Community Reinvestment Act, which encourages banks to lend in low- and moderate-income neighborhoods. Since there is little conclusive empirical evidence that banks fail to meet the credit needs of such neighborhoods, however, the CRA regulations should instead be viewed as a tax on banking. Direct public subsidies for community development would be a more efficient means of improving the condition of low-income neighborhoods.

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