Two decades ago, concerned about discriminatory housing and lending policies, the federal government created a vast regulatory and compliance infrastructure to increase the availability of credit. The centerpiece of this effort was the 1977 Community Reinvestment Act (CRA), which requires federal banking regulators to encourage large commercial banks and thrifts to lend to minority communities and low income borrowers.

From the 1930s through the 1970s, federal laws and regulations restricted competition among financial institutions -- limiting the products and services provided, the geographic areas served and the interest rates offered depositors or charged borrowers.

But since 1980, deregulation has led to increased competition from a variety of lending institutions, many of which are not covered by the CRA.

• In fact, as a group, non-CRA institutions have devoted a growing proportion of their home-purchase lending to low- income communities -- rising from 11 percent in 1993 to 14.3 percent in 1997 and accounting for just under 40 percent of all home-purchase loans to low-income neighborhoods in 1997.

• In contrast, CRA-covered lenders devoted about the same proportion of their home-purchase loans to low-income neighborhoods in 1997 as they did in 1993 -- about 11.5 percent (see Chart 1).

• Also, for low-income borrowers regardless of their neighborhoods, the proportion of home-purchase lending by non-CRA institutions rose from 25 percent in 1993 to 32 percent in 1997 -- while CRA-covered lenders extended 27 percent of their home-purchase loans to low-income borrowers in 1993 and 26 percent in 1997 (see Chart 2).

In recent years, say researchers, technological progress, financial innovation and competition -- not the CRA -- has broadened the U.S. financial services marketplace. An increasing number of consumers have gained access to credit, mostly at competitive prices and terms.

Source: Jeffery W. Gunther, Kelly Klemme and Kenneth J. Robinson, "Redlining or Red Herring?" Southwest Economy, May-June 1999, Federal Reserve Bank of Dallas.