Banks’ “affirmative obligation” to serve local communities in which they do business is as powerful today as it was more than 40 years ago when anti-redlining laws were adopted, the former chairman of the federal insurer of bank deposits, and current board member, said Monday.
In a speech at Fordham University in New York City, Federal Deposit Insurance Corp. (FDIC) Board Member and former Chairman Martin Gruenberg said it is important to retain the foundations of the law, the Community Reinvestment Act (CRA).
“As we move forward, it is important to retain CRA’s foundations – the community-based focus, the reliance on community input, and the consideration of discriminatory and other illegal credit practices in the CRA evaluation – developed over a 40-year history of expanding access to credit in low- and moderate-income communities, even as we seek to adapt CRA to an evolving banking environment,” Gruenberg said.
He asserted that any future changes considered to CRA (adopted in 1977) should be based on the foundations of CRA developed over its history, including the consideration of discriminatory and other illegal credit practices in the CRA evaluation.
In August, the Office of the Comptroller of the Currency (OCC), the federal regulator of national banks, issued an advance notice of proposed rulemaking seeking comment on the best ways to modernize the regulatory framework implementing CRA. Among other things, the OCC said modernization of the rules would strive to “better achieve the statute’s original purpose, increase lending and investment where it is needed most, and reduce the burden associated with reporting and assessing CRA performance.”
Gruenberg suggested that a number of proposals for altering the law should be weighed carefully.
“For example, a ‘CRA ratio’ for a bank that attempts to aggregate all CRA-eligible activities into one quantitative performance ratio for the institution, as has been suggested to provide greater clarity and certainty to the CRA evaluation, could obscure the current community-based focus of CRA and undermine its basic purpose,” he said to an audience that included representatives of the Association for Neighborhood and Housing Development, Enterprise Community Partners, and the University Neighborhood Housing Program.
“It could fundamentally change the relationship between banks and local communities,” he said.
He also said a reliance on a single ratio of CRA performance could allow banks to pick and choose which communities to serve and which products and services to offer in those communities. “It is not clear how it would be made compliant with the statutory requirement that the CRA evaluation be presented separately for each metropolitan area in which a bank maintains one or more branches,” he said.
He added that such an approach could undermine the incentive that banks now have to develop constructive partnerships with community organizations. “It is these partnerships between community organizations and banks that have been central to community development in low- and moderate-income neighborhoods throughout New York City and around the country,” he said.
The Community Reinvestment Act: Its Origins, Evolution, and Future – Remarks by Martin J. Gruenberg, Member, Board of Directors, Federal Deposit Insurance Corporation, at Fordham University, Lincoln Center Campus, New York, New York