The Real Effects of Geographic Lending Disclosure on Banks

The Community Reinvestment Act requires banks to disclose the geographic distribution of their small business lending, which informs the public about their performance in meeting the credit needs of local communities. We investigate whether such disclosures increase public pressure and thus have real effects on reporting banks. We exploit the 2005 reform that exempted the geographic disclosure requirement and thus allowed banks perceiving high disclosure costs to stop doing so. Using a large sample of exempt banks, we find that after the exemption, non-disclosing banks, relative to those that continue to disclose lending distribution, experience a decrease in non-performing commercial loans but not for other types of loans. The decrease is stronger for banks under more scrutiny by community organizations prior to the exemption. Together, the findings suggest an improvement in loan underwriting quality of non-disclosing banks due to reduced public pressure