A House committee hearing this week yielded varying opinions on the role of the Community Reinvestment Act (CRA), which Congress passed in 1977 in an effort to boost lending to low-income neighborhoods.
Some witnesses, such as Massachusetts Commissioner of Banks Steven L. Antonakes, suggested CRA could be improved by increasing review standards for the largest institutions.
‘Currently, the focus and scrutiny on smaller banks relative to CRA remains disproportionate to the supervision of our nation's largest banks, when you consider the dominant market share the nation's largest banks command,’ he told the Financial Services Committee. ‘Efforts to further streamline examinations and compliance costs for small banks should be considered, while a significantly more robust annual examination process should be undertaken for the top 20 bank lenders in the country.’
Testifying on behalf of the American Bankers Association, Leslie R. Andersen, president and CEO of Bennington, said CRA should be simplified and made more flexible. She also advocated for its reach to cover all depositories.
‘Although CRA itself is tailored to the banking industry, its core concepts of…providing public visibility for the resulting evaluation are applicable to other sectors – especially to credit unions that also have a congressional mandate to serve persons of modest means and who are increasingly seeking community-based charters,’ she testified.
Lawrence J. White, professor of economics at the New York University Stern School of Business, took a different track. ‘The CRA is not a good public policy tool for achieving the goals of it advocates,’ he concluded.
‘[T]he CRA is based on the notion that banks systematically overlook profitable opportunities in [low- and moderate-income] communities,’ he said, adding that the notion ‘seems unlikely in today's environment.’
Some critics of the act argue that CRA contributed to the subprime lending boom that ultimately triggered the current foreclosure crisis. Others suggest this line of thinking is incorrect, as the CRA has been in existence for over 30 years and loosened underwriting standards did not reveal themselves, in large part, until the 1990s.
‘We're talking about 32 years of history,’ Jordan Brown, CEO of Ponte Vedra Beach, Fla.-based MarketWise Advisors LLC told Secondary Marketing Executive, which examined CRA modernization in its September E-Feature. ‘CRA did not require financial institutions to make high-risk loans or to jeopardize the safety and soundness of the corporation. It was designed to level the playing field and encourage institutions where they were taking deposits to even their lending across their geographic base.’