Researchers and financial analysts are still sorting through causes of the financial crisis. One target is the Community Reinvestment Act (CRA), which requires that banks to lend to low and moderate income people in the communities where they take deposits. Among the naysayers are Ron Paul, who charged the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks," and Jeffrey A. Miron, an economics professor at Harvard, who called for “getting rid” of policies like the CRA that “pressure banks into subprime lending.” But Paul and Miron may now have to eat their words.
An exhaustive new study by 12 Federal Reserve Banks absolves the CRA in the sub-prime crisis. Here’s Randall Kroszner:
“Two key points emerge from all of our analysis of the available data. First, only a small portion of subprime mortgage originations are related to the CRA. Second, CRA-related loans appear to perform comparably to other types of subprime loans. Taken together, as I stated earlier, we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis.”