Federal Reserve Director on the CRA

From the Federal Reserve:

"Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution’s individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution’s CRA activities should be undertaken in a safe and sound manner." (emphasis added)

What about mergers or acquisitions — did the CRA get in the way of that?

"Since 1988, there have been more than 13,500 applications for the formation, acquisition, or merger of bank holding companies or state-member banks reviewed by the Federal Reserve Board. Over this time, twenty-five applications have been denied, with eight of those failing to obtain Board approval involving unsatisfactory consumer protection or community reinvestment issues." 

Wow, just 8 out of 13,500. That’s less than one tenth of 1%.  

What about the methods of forcing compliance?

"The CRA is one of several laws enacted to ensure that consumers and communities have access to financial services and products regardless of location or demographics. Congress sought to achieve that goal not by imposing rigid, prescriptive rules but by charging regulators to use flexible standards that could change, as needed, over time."

Gee, this doesn’t sound too onerous; What was all the brouhaha about?

"The debate surrounding the passage of the CRA was contentious, with critics charging that the law would distort credit markets, create unnecessary regulatory burden, lead to unsound lending, and cause the governmental agencies charged with implementing the law to allocate credit. Partly in response to these concerns, the act adopted by Congress included little prescriptive detail.

What are the requirements of the CRA?

The CRA simply requires the Federal Reserve and the other federal financial supervisory agencies:

• to encourage federally insured depository institutions to help meet the credit needs of their entire communities, including low- and moderate-income areas, consistent with safe and sound operations;
• to assess their records of performance under the CRA during examinations; and
• to take those CRA records into account when evaluating proposals for expansion.

Hey, that sounds pretty flexible. What sort of discretion exists in applying the CRA:

The law gives the agencies considerable discretion and flexibility to fashion programs and procedures to carry out the purposes of the law, to issue implementing regulations that include measures of performance, and to modify those regulations in response to changing markets.  This flexibility has contributed to CRA’s relevance and adaptability through times of rapid economic and financial change, and widely differing economic circumstances among neighborhoods.

Wow, this stuff makes the wingnuts and gasbags look pretty foolish. What’s your source for all this?

All quotes are come from the testimony of Sandra F. Braunstein, Director, Division of Consumer and Community Affairs of the Board of Governors of the Federal Reserve System, before the Committee on Financial Services, or from the Federal Reserve website.


The Community Reinvestment Act
Sandra F. Braunstein, Director, Division of Consumer and Community Affairs
Before the Committee on Financial Services, U.S. House of Representatives
February 13, 2008   

See also:
The Community Reinvestment Act: Its Evolution and New Challenges 
Chairman Ben S. Bernanke
Community Affairs Research Conference, Washington, D.C. March 30, 2007

Community Reinvestment Act   

The Performance and Profitability of CRA-Related Lending
Robert B. Avery, Raphael W. Bostic, and Glenn B. Canner
Federal Reserve Bank of Cleveland, November, 2000
Economic Commentary

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