Who Lends Beyond the Red Line? The Community Reinvestment Act and the Legacy of Redlining

Redlining occurs when financial institutions refuse to serve particular neighborhoods, often based on their racial and ethnic composition. Maps like those infamously created by the New Deal's Home Owners' Loan Corporation in the Great Depression rated and color-coded neighborhoods, assigning red to those considered the greatest credit risk. The Community Reinvestment Act (CRA) was passed in 1977 to combat the legacy and practice of redlining. However, we find neighborhoods rated declining or hazardous in the 1930s are still associated with worse economic conditions eight decades later. Moreover, although we find evidence that CRA encourages local banks and thrifts to lend to lower income borrowers, we find no difference in the market share of CRA-regulated lenders in lower income neighborhoods. In fact, these institutions lag the market in historically redlined neighborhoods.