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BankThink

By staying on sidelines, the Fed is protecting CRA

At the same time President Donald Trump faces impeachment, his banking regulators at the Office of the Comptroller of the Currency are leading a deregulation plan that will benefit Wall Street banks, but do irreparable harm to low-income and minority communities nationwide.

The OCC’s proposal, later supported by the Federal Deposit Insurance Corp. and immediately praised by bank lobbyists, will forever change the Community Reinvestment Act.

It’s clear the Trump administration’s agenda is dictated by Wall Street with deregulation at its core, including dismantling the very heart of the CRA. The 42-year-old law needs protectors and guardians of the statute, who will not only defend the spirit of the law but its very mission.

Guardians like FDIC board member Martin Gruenberg, a former chairman of the agency, who summed it up best when he said the proposal was “deeply misconceived" and "would fundamentally undermine and weaken” the law.

Unfortunately, Gruenberg was the lone vote against the proposal when the rest of the FDIC board joined the OCC on its CRA revamp Dec. 12.
The Federal Reserve now stands alone as the one banking regulator not to join the proposal, in acting as the guardian of the CRA and the communities it’s designed to strengthen.

The Federal Reserve has stated that “any modernization of the CRA must further the goal at the heart of the statute — encouraging banks to meet the credit needs of local low- and moderate-income communities.”

The CRA proposal not only fails to further the goals at the heart of the statute, but it guts the very heart of it. It takes the focus of the law away from low-income communities and incentivizes harm rather than doing good.

The CRA was created mainly in response to prevent so-called redlining, when lenders were refusing to lend to areas of low-and moderate-income communities and communities of color. Yet, the focus of the new proposal on low-income communities is relaxed.

For example, a housing project could qualify for CRA credit if the rent is affordable to low-income people, even if it is rented to an upper-income family. In other words, banks might get CRA credit for gentrifying neighborhoods.

Found within the proposal are numerous other examples of making it easier for banks to get CRA credit, while having no intention of supporting low-income communities. In particular, this includes giving credit for activities that would provide less of a benefit for communities and more of a benefit to billionaire sports teams by providing CRA credit for the upgrades of sports stadiums in “opportunity zones.”

The proposal also allows banks to ignore up to half of their assessment areas and still obtain a satisfactory or outstanding grade. This will likely result in the reduction of banking investments and services in rural communities.

Banking desserts are a growing crisis in rural areas. A 2019 study by the Federal Reserve found that 100 banking markets went from having at least one banking headquarters in 2012, to having none by 2017. And almost all of them were in rural markets.

The loss of banking headquarters often result in the loss of reinvestment activity, a main driver for low-income communities to access wealth-building opportunities.

The consequences of the proposal are far-reaching and long-lasting.

Yet, it’s clear that the OCC is not interested in public feedback. The release of the proposal just before Christmas was no coincidence.

There will be a mere 60 days to gather community and public input. Meaningful public input would require a public comment period of 120 days. It doesn’t help that the changes were announced right before the holidays.

The very intent and heart of the CRA is at risk. The statute needs its guardians.

Communities across the country are looking to the Federal Reserve Board — the last remaining institution that has not yet fallen for the proposal — to stand guard and not join in supporting the proposed changes to the CRA.

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