The valuation effects of the 1977 Community Reinvestment Act and its enforcement

Johnson, Shane A.; Sarkar, Salil K.

doi:10.1016/0378-4266(96)00007-6

Cited by 21 publications

(25 citation statements)

References 21 publications

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“…Using the CRA announcement as the reference point for defining the estimation period, we observe a significant negative stock-price reaction to CRA protests, which conforms to the findings in Johnson and Sarkar (1996). However, when we use the merger announcement as the reference point, we do not observe any relation between CRA-related events and security price movements.…”

Section: Resultssupporting

confidence: 84%

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Do CRA-Related Events Affect Shareholder Wealth? The Case of Bank Mergers

Black

Bostic

Robinson³

et al. 2005

Financial Review

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This study explores how Community Reinvestment Act (CRA) protests and their resolution affect the market value of merging banks. We find, in contrast to earlier research, that CRA-related events are not associated with significant negative market reactions for either bidder or target institutions. Rather, the market does not seem to respond strongly to CRA-related events at all. The results appear to stem from the choice of an estimation period for establishing an institution's baseline stock-market price dynamics that does not include abnormal security price movements induced by the merger announcement. Copyright 2005 by the Eastern Finance Association.

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Section: Resultssupporting

confidence: 84%

“…This is the approach taken in Johnson and Sarkar (1996), in which the event of interest is the CRA-related event (Period A in Fig. 1).…”

Section: Specification Of Event-study Estimation Periodmentioning

confidence: 99%

Do CRA-Related Events Affect Shareholder Wealth? The Case of Bank Mergers

Black

Bostic

Robinson³

et al. 2005

Financial Review

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“…This way, they offer socially responsible credit cards or charitable savings accounts (Fock et al, 2011). They also give loans, as for example USA banks under the 1977 Community Reinvestment Act, which requires depository institutions to take affirmative actions to meet the credit needs of their communities, including low income neighbourhoods (Johnson and Sarkar, 1996). Financial institutions have developed, from clients' past behaviour databases, a good number of credit scoring systems, applying statistical models or expert systems.…”

Section: Conventional Banks That Offer Loans For Social Purposes Socmentioning

confidence: 99%

A Credit Score System for Socially Responsible Lending

2014

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Ethical banking, microfinance institutions or certain credit cooperatives, among others, grant socially responsible loans. This paper presents a credit score system for them. The model evaluates both social and financial aspects of the borrower. The financial aspects are evaluated under the conventional banking framework, by analysing accounting statements and financial projections. The social aspects try to quantify the loan impact on the achievement of Millennium Development Goals such as employment, education, environment, health or community impact. The social credit score model should incorporate the lender's know-how and should also be coherent with its mission. This is done by using the Analytic Hierarchy Process (AHP) technique. The paper illustrates a real case: a loan application by a social enterprise presented to a socially responsible lender. The decision support system not only produces a score, but also reveals strengths and weaknesses of the application. AbstractEthical banking, microfinance institutions or certain credit cooperatives, among others, grant socially responsible loans. This paper presents a credit score system for them. The model evaluates both social and financial aspects of the borrower. The financial aspects are evaluated under the conventional banking framework, by analysing accounting statements and financial projections. The social aspects try to quantify the loan impact on the achievement of Millennium Development Goals such as employment, education, environment, health or community impact. The social credit score model should incorporate the lender's know-how and should also be coherent with its mission. This is done by using the Analytic Hierarchy Process (AHP) technique. The paper illustrates a real case: a loan application by a social enterprise presented to a socially responsible lender. The decision support system not only produces a score, but also reveals strengths and weaknesses of the application.

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“…Benston (1999) discusses the direct costs associated with CRA compliance. Johnson and Sarkar (1996) find negative valuation effects associated with the CRA. White (1993) discusses the difficulty under competitive conditions of requiring banks to subsidize lending to local communities.…”

Section: Introductionmentioning

confidence: 83%

Safety and Soundness and the CRA: Is There a Conflict?

Gunther

2002

Economic Inquiry

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Ordered probit regressions of the supervisory ratings assigned to banks point to a conflict between the credit enhancement objectives associated with the Community Reinvestment Act (CRA) and financial safety and soundness standards. Aggressive banking strategies tend to help CRA ratings but hurt safety and soundness ratings. In addition, banks with financial problems are more likely to receive substandard CRA ratings, even though their condition may require a retrenchment from CRA objectives. Finally, there is some limited evidence to suggest that a greater focus on lending in low-income neighborhoods helps CRA ratings but at the expense of safety and soundness. (JEL G21, L51, C25)

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The valuation effects of the 1977 Community Reinvestment Act and its enforcement

Cited by 21 publications

References 21 publications

Do CRA-Related Events Affect Shareholder Wealth? The Case of Bank Mergers

Do CRA-Related Events Affect Shareholder Wealth? The Case of Bank Mergers

A Credit Score System for Socially Responsible Lending

Safety and Soundness and the CRA: Is There a Conflict?

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