CRA Hurts Rather than Helps Minorities, Cato Says

The Clinton administration's defense of the Community Reinvestment Act is based on the misguided belief that the act and a related law, the Home Mortgage Disclosure Act, actually benefit minority populations, according to a paper released by the Cato Institute this week.

"Repealing, rather than strengthening, the act would be the economically and socially responsible thing to do," argues George J. Benston, a professor at Emory University's Goizueta School of Business and a member of the Shadow Financial Regulatory Committee.

In his paper, Mr. Benston cites various studies to conclude that there is no evidence that qualified minority and inner-city borrowers are discriminated against. Also, he says, large banks trying to fulfill their CRA requirements siphon the best borrowers away from smaller community banks, which in turn hurts the neighborhoods the act is designed to help.

Ed Hudgins, a spokesman for the institute, said it deliberately released the paper during the House-Senate conference committee on the financial modernization bill. "We're hoping that this paper will force the CRA's supporters to put up or shut up," he said. -- Rob Garver