Why might the Community Reinvestment Act of 1977 backfire in its long-run effect

Question

Why might the Community Reinvestment Act of 1977 backfire in its long-run effects on credit supply?



_______

A)

Its requirements for local lending raise the cost of operating banks in urban areas and may lead to fewer banks entering these communities over time.

B)

Its requirement that banks make loans only for investment purposes may reduce the loans available for consumption purposes.

C)

Its requirement that banks buy large amounts of local municipal bonds may lead to reckless spending by local governments.

D)

Its limits on credit card interest rates may lead to banks offering fewer credit cards.

Explanation / Answer

Why might the Community Reinvestment Act of 1977 backfire in its long-run effects on credit supply?



_______

A)

Its requirements for local lending raise the cost of operating banks in urban areas and may lead to fewer banks entering these communities over time.

B) Its requirement that banks make loans only for investment purposes may reduce the loans available for consumption purposes. -correct option

C)

Its requirement that banks buy large amounts of local municipal bonds may lead to reckless spending by local governments.

D)

Its limits on credit card interest rates may lead to banks offering fewer credit card

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