Fed has to pitch in on CRA makeover

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For decades, improving the lives of the underbanked through better regulations has been too controversial and hard for the nation’s banking regulators to tackle.

Fortunately, Federal Deposit Insurance Corp. Chairman Jelena McWilliams and Comptroller of the Currency Joseph Otting have placed the needs of the unbanked and underbanked ahead of Wall Street bankers by joining forces to propose dramatic reforms to the regulations governing the Community Reinvestment Act.

This brings hope of a Christmas miracle for America’s underbanked communities.

Unfortunately, the Federal Reserve has decided not to join the OCC and FDIC in their solution or even to propose one of their own to this urgent, universally recognized problem.

This raises the question: Why won’t the Fed help solve this critical problem? The Fed must get on board or propose an alternative of their own to fix CRA regulations. To stick with today’s failed system is to abdicate their responsibility.

Roughly 40 years after the adoption of the CRA, there remain more than 30 million households across America that are unbanked and underbanked. Minorities, women and small-business owners are disproportionately being left behind.

Meanwhile, the Fed continues to be a regulatory rubber stamp for those banks that are responsible to the plight of the underbanked. It has been decades since the Fed has attempted to bring the unbanked and underbanked into the mainstream financial system through CRA reforms to address America’s income and wealth inequality.

The OCC and FDIC have now taken a different approach. They have joined forces to bring hope to these overlooked, forgotten Americans by proposing holistic reforms to the regulations governing the CRA.

While this proposal is a significant step forward, it is not perfect and will benefit from nonpartisan public comments and input. However, it is clear that minority and lower income communities will benefit from the ultimate reforms.

The National Diversity Coalition is encouraged by the OCC’s and FDIC’s thoughtful, productive proposals. These regulators stuck their necks out for those who need it most. The proposed reforms have the potential to usher in a new era of impact, transparency and responsibility in community development across the banking industry.

The proposal will result in bank community development investments increasing by more than $100 billion annually, based on initial analysis. It will result in significant reductions in banking deserts; and increased bank partnerships with community development financial institutions, nonprofits and faith-based organizations to address the needs of the underbanked.

Going forward, there are three key improvements that can be made to the proposal prior to final adoption.

First, reforms should ensure that regulatory ratings of banks are calibrated correctly.

Second, banks must be incentivized properly when they seek a rating of “outstanding.”

Third, regulators must ensure that direct lending to underbanked communities is rewarded appropriately, with CRA reforms that improve the lives of millions of small-business owners and consumers currently left behind by banks.

The OCC and FDIC has opened the door to be responsive to such good ideas that will benefit many underserved communities. The National Diversity Coalition is hopeful that the Fed will join them at the finish line.

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CRA CDFIs Farm and rural mortgages Joseph Otting Jelena McWilliams OCC FDIC Federal Reserve