Exporting CRA

The Community Reinvestment Act has been a durable instrument for expanding lending in the United States. The question now is, is it exportable to other countries?

The latest issue of the Community Development Investment Review, a publication of the Federal Reserve Bank of San Francisco, takes this topic on in several articles. An article by David A. Smith of the Affordable Housing Institute calls CRA "a good idea" that "could use a makeover and a bigger audience" as it goes global.

Another article, by Tova Maria Solo, formerly with the World Bank, posits that Latin America "urgently needs CRA," with the caveat "Why CRA Won't Work for Latin America." And a third, by Prabal Chakrabarti of the Federal Reserve Bank of Boston, points to an unexpected overseas spot where CRA might work — rural China.

"Today's banking world is global," writes Smith, "and that should enforce the field to reinterpret those original CRA goals in a global context." Smith targets South Africa, the United Kingdom, India and Brazil as countries "most ready for CRA-esque regulation." Other possibles? Australia, China and Mexico.

"Urban blight on a grand scale" in Latin America argues for a CRA-like initiative, writes Solo. But, she feels CRA won't work in Latin America.

"Latin America's political system, like Europe's, is not based on geographical representation," meaning local issues suffer as a result. Political clout among local politicians means they have an incentive to keep the current system. Also, the government competes with banks by subsidizing residents for services on the basis of income. These services, while cheaper, can take a long time to be implemented.

Rural China might not seem like the ideal place for a CRA, but Chakrabarti notes some "surprising areas of commonality" when Chinese banks reached out to the Fed to study the CRA.

"At a time when advocates of CRA in the U.S. have had to play defense, the world's new economic superstar sees it as a model for how to keep growth both sustainable and equitable."

The CRA has taken a bad rap in the U.S. as having helped cause the mortgage crisis, but it never recommended lenders make loans to people who can't pay them back. Hopefully it can be exported abroad to countries where lending inequalities need correcting.

Mark Fogarty is the editorial director for SourceMedia's mortgage publications. He can be reached at Mark.Fogarty@SourceMedia.com.