We analyze residential mortgage lending by banks in periods surrounding upgrades or downgrades in their ratings under the Community Reinvestment Act (CRA). Empirical results indicate that upgraded banks had higher relative levels of lending than did downgraded banks prior to ratings changes. Additionally, both downgraded and upgraded banks increased lending following implementation of reforms to the CRA in the 1990s, which were intended to more closely align rating assessment with lending outcomes. Little support is provided, on the other hand, for a hypothesis that banks respond to downgrades by increasing lending (despite apparent incentives for them to do so).
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Document Type: Research Article
Drew Dahlis the Harold and Ruth Dance Professor of Finance in the Economics and Finance Department at Utah State University (: )., Email: drew.dahl@.usu.edu
Douglas D. Evanoffis Senior Financial Economist in the Economic Research Department at the Federal Reserve Bank of Chicago and an Adjunct Professor at DePaul University (: )., Email: firstname.lastname@example.org
Michael F. Spiveyis Professor of Finance in the School of Accountancy and Finance at Clemson University (: )., Email: email@example.com
Publication date: 2010-10-01