Fed chair concedes it’s a good time to consider CRA revisions – but way forward for agency is undetermined

It’s a good time to consider updating rules enforcing anti-redlining laws – but the Federal Reserve has not yet determined what is the best way forward to do that, the agency’s board chair said Wednesday.

Which includes, at least for now, getting the board to sign on to the proposal made by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC).

In comments at a press conference, Federal Reserve Board Chair Jerome H. (“Jay”) Powell said updating the Community Reinvestment Act (CRA) rules should be done in a way that is a “win-win” for banks (which are looking for certainty under the rules) and the communities that they serve. “The law can be more effective and efficient,” Powell said, adding that it is also a good time to take into consideration how banking services have changed.

Powell said the Fed worked hard to “get on board with the OCC and the FDIC” on their rule revision proposals (which are now out for comment), “and we still hold out hope we will be able to.” Powell noted that the Fed spent much time on research and analysis for revising the rules – but that “we haven’t made any decisions yet on what we are going to do going forward.”

Powell said he was comfortable with recent comments made by Fed Gov. Lael Brainard – who said in a speech earlier this month that the Fed is standing firm in its goal of ensuring any reform of CRA rules remains true to the statute, and is counting on input from the public to help ensure the best outcome possible for any final rule.

The Fed chair would also not comment on the OCC and FDIC proposals. “It’s not about us,” he said.

In other comments during the Wednesday press conference (following the meeting of the Fed’s rate-setting Federal Open Market Committee [FOMC]), Powell said:

  • Dealing with the impact of climate change on financial stability “has to be part of our role” at the Federal Reserve. In responding to a question whether climate change poses system-wide financial stability risk, Powell said that “over the longer term, that’s certainly possible.” He said that view “sort of feeds into the way we (the Fed) are thinking of climate change as an institution.” He added that “the public has every right to expect that the financial system is resilient and robust to climate change.”
  • Proposed changes to be considered to the Volcker Rule’s provisions on covered funds (to be considered at the board’s meeting Thursday) are “faithful to the letter and spirit of the law.” He would not elaborate, except to say the board is looking forward to comments on the proposal.
  • The Fed continues to focus on rising business debt. He said the Fed did not consider the rising level of “leveraged lending” to be a threat to financial stability, but rather an “amplifier” of financial stability vulnerability. Overall, Powell said (reiterating past statements) there is only a moderate risk to financial stability.

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