Plenty of politicians have recently been paying lip service to the issue of wealth disparity. Clearly, polling has told them that it's at the forefront of many Americans' minds, which is a good thing for them to know. But a key part of the conversation is missing: the role of banks. It's time for these public officials and aspiring public officials to say and do more to show they're truly committed to economic fairness.
It is highly lucrative to be in the financial services sector lately. Banks are posting huge profits and the stock market has surged in recent years. And, once again, the wealthy are becoming wealthier. The wealth gap is growing.
These same banks are obligated by the Community Reinvestment Act to make responsible loans and investments in the communities where they are chartered, including blue-collar neighborhoods. But unfortunately, the regulators in charge of assessing how well banks are doing seem out of sync with the experiences of Main Street, where mortgages and small-business loans are hard to come by. The best evidence for this comes in what is a clear pattern of grade inflation: In 2014, over 98% of banks evaluated received a passing grade on their CRA exam.
Banks are important assets for our communities. Whether it is a mortgage that allows a family to buy a home and build wealth, a small business loan that allows an entrepreneur to start or build a business, or a checking or savings account or other basic banking service, banks play an absolutely critical role in economic opportunity and economic growth. Without them, avenues to climb the economic ladder are sparse. When banks withdraw from communities, opportunities dry up.
That's why it is deeply troubling that too many regulators bring a rubber-stamp mentality to what is an enormously important law that could do a great deal more to increase economic opportunities for working people and communities of color across the country. Regulators need to update the CRA regulations and bring real rigor to the examination process. It's time to hold these financial institutions, which are highly proficient at building wealth for themselves, to a higher standard when it comes to community prosperity.
Too many politicians on both sides of the aisle took the wrong lesson from the financial crisis. A combination of a financial services industry run amok, and a Congress and regulatory agencies asleep at the wheel, were the ingredients that led to the crisis. But many people seem to have come to the bad conclusion that a critical wealth-building mechanism — homeownership — was the problem. This claim is unsubstantiated by any study or data. Homeownership remains the single best mechanism for working families to build wealth and enter the middle class.
But how has Congress occupied itself in the face of a growing wealth gap and economic challenges that working people are facing across America? By working to dismantle our system of housing finance through attempts to eliminate Fannie Mae and Freddie Mac and their affordable housing goals, which would severely narrow the options for working-class families seeking to become homeowners. By attempting to roll back the Dodd-Frank Wall Street Reform and Consumer Protection Act, and all of the important consumer protections it put in place, including Consumer Financial Protection Bureau rules. These actions make it pretty clear who these members of Congress are really working for.
Our leaders and aspiring leaders need to shine a spotlight on this issue. Financial institutions have an obligation to our communities, by law. It's time to take that seriously.
John Taylor is president and chief executive officer of the National Community Reinvestment Coalition.