Journal Article

Between a rock and a hard place: the CRA-safety and soundness pinch

Abstract: A statistical model of regulatory exam ratings provides evidence of conflict between Community Reinvestment Act (CRA) objectives, on one side, and safety and soundness standards, on the other. In his analysis of supervisory goals, Jeff Gunther finds that concentrating bank assets in loans and managing capital at relatively low levels tend to help CRA ratings while hurting CAMEL ratings. Also, banks with financial problems are more likely to receive substandard CRA ratings, even though a shift in resources away from CRA objectives may be necessary to facilitate financial recovery. These findings point to a supervisory process in pursuit of conflicting goals and highlight underappreciated costs of the CRA.

Keywords: Banks and banking - Customer services; Bank supervision; Community Reinvestment Act of 1977;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Economic and Financial Policy Review

Publication Date: 1999

Issue: Q II

Pages: 32-41