Everybody’s Business

September 3, 2010

It's Time to Bring CRA Current

By Warren McLean, CRF V.P. of Development

I was recently in Chicago at a public meeting to discuss changes to CRA, the Community Reinvestment Act.

Hosted by the Federal Financial Institutions Examination Council and the Federal Reserve Bank of Chicago, the hearing was one of several to discuss CRA, the 1977 law designed to encourage commercial banks and savings associations to help low- and moderate-income borrowers in their areas.

Without question, CRA has been the catalyst for economic and community development in many of America's distressed, underserved and disaster-stricken communities. CRA is vital to ensuring those living in these areas can access the resources they need to rebuild and revitalize their communities.

But it's definitely time to bring this 33-year old law current. Here are six ways I think the CRA mandate could be made even stronger:

1. Expand banks' geographic scope. National and Web-based banks could provide credit to many more low- and moderate-income communities simply by lifting the current antiquated geographic restrictions.

2. Give CRA credit for all CDFI-related loans. Non-profit CDFI (Community Development Financial Institutions), which are experts at delivering credit and capital to low-income communities, should receive CRA credit for all loans or investments, regardless of whether the institution is located or active in a bank's CRA assessment area.

3. Grant CRA credit for pooled investments. This is an easy one, since CRF has long advocated for greater use of pooled investment vehicles to deliver capital to distressed communities. Naturally, we think pooled investment vehicles should also qualify for full CRA credit.

4. Increase loans to small businesses. This is also a no-brainer, since we think that economic recovery will depend on increasing CRA-eligible loans for small businesses across the country.

5. Give CRA credit for long-term loans. Under current CRA regulations, banks are rewarded for making short-term investments that match CRA cycles. We think banks should receive CRA credit for loan terms that match the needs of CDFIs and communities they serve, including long-term loans - and not just those that match the short-term CRA cycle.

6. Incentivize banks for investing in CDFIs. Grants and incentives are great ways to enhance CRA-eligible community development loans. Grant dollars are extremely helpful but often hard to raise, especially in challenging economic conditions. Equity or equity-equivalent investments are great because they enable CDFIs to attract and leverage significant private sector capital that can be reinvested in underserved communities. We think CRA regulators should give special consideration to banks that make equity or equity-equivalent investments in CDFIs.

I think the best way to ensure CRA's continued effectiveness is by getting involved in these types of hearings. Stay tuned for updates on our participation in helping CRA move forward and fulfill its mission.

Posted by: CRFUSA

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