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Working Paper

Bridging the Gap? Government Subsidized Lending and Access to Capital

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The consequences of providing public funds to financial institutions remain controversial. We examine the Community Development Financial Institution (CDFI) Fund's impact on credit union activity, using hitherto little studied U.S. Treasury data. The CDFI Fund grants increase lending at credit unions by 3%. For every dollar awarded, 45 additional cents are loaned out to borrowers in the first year, and up to an additional $1.60 is loaned out within three years. Delinquent loan rates also increase slightly. Our panel results are supported by a broadband regression discontinuity analysis. Politics does not seem to play a role in allocating funding.
Topics
Lending and access to credit
11.21.2012ISSN 2573-7953 WP 12-29DOI 10.26509/frbc-wp-201229
Keywords cdfi, credit supply, loan demand, loan growth, loan loss, political connection
JEL Classification Codes G28

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Lerner, Josh, and Kristle Romero Cortés. 2012. “Bridging the Gap? Government Subsidized Lending and Access to Capital.” Federal Reserve Bank of Cleveland, Working Paper No. 12-29. https://doi.org/10.26509/frbc-wp-201229