Federal Reserve Board Governor Laurence H. Meyer said Friday that bank mergers and declining federal subsidies threaten community development efforts.
"Consolidation of the financial services industry ... is raising concerns among community developers that the resources and personnel devoted to community development activities may be decreasing in proportion to the increasing size of institutions," Mr. Meyer said at a Federal Reserve Bank of Chicago conference.
Mergers reduce the number of banks vying to offer affordable housing loans and may result in fewer loan officers being dedicated to community development, he warned. Banks that undergo mergers also may consolidate their community development officers into a single facility, eliminating their presence in some regions, he said.
At the same time, low-income communities need the private sector more than ever because government funds are drying up, he said.
"Whether increasingly large institutions can maintain the level of commitment to affordable housing and community development, consistent with their increased market power, will remain a challenge," the Fed governor said.
Mr. Meyer also defended the Community Reinvestment Act, which celebrated its 20th anniversary last month. The law has taught banks that low- income communities represent viable markets, he said.