New Orleans There’s a big split within the federal banking establishment about what to do about revisions to the 1977 Community Reinvestment Act. This is not your run of the mill, chest thumping, and elbow pushing in Washington over turf and regulatory jurisdiction. It’s actually very important, particularly to low-and-moderate income families and their hopes of obtaining decent and affordable housing.
Recent reports had the Office of the Comptroller of the Currency (OCC) moving forward without agreement from the other major players, the Federal Deposit Insurance Corporation (FDIC) and, most importantly, the Federal Reserve Bank, which is the primary enforcer of the banks CRA obligations in lending. The OCC gang wants to give banks credit for putting big dollops of dollars somewhere close to lower income neighborhoods and letting the big one-off expenditures cover their CRA requirements without focusing on family lending. The FDIC has joined them in large part. The Federal Reserve has finally come out foursquare against allowing the CRA score to be tilted towards big community development projects such as loans to hospitals, universities, and other claimants and in favor of maintaining an emphasis on individual lending in lower income areas for home mortgages. The OCC/FDIC plan would also allow banks to “buy” their way out of their obligations by claiming packages of loans in rural areas and to small businesses, even where they have no operations, rather than doing the hard work of upgrading the areas that need investment where they have operations and branches. The OCC/FDIC plan would start with the dollar amount claimed by a bank as CRA eligible, rather than breaking the loans into the key baskets for evaluation that have been the sharpest teeth left in the Act over the last more than forty years grinding it down.
Looking at the acquisition of City National Bank (CNB) in Los Angeles by the Royal Bank of Canada (RBC) is a good example of why the OCC/FDIC changes would be disastrous. The CNB community reinvestment work had been lackluster prior to the merger discussions, and numerous groups didn’t hesitate to make that known to the Federal Reserve. RBC finally prevailed in the acquisition largely by agreeing to make a $2 billion investment in CRA loans over a multi-year period that is now going into its final year. ACORN requested the public file on CNB’s CRA work recently to see how they have fulfilled their commitment. I’ll keep you out of the weeds, although we’ll invariably comeback to CNB and RBC in the future, but they are failing on their commitment pretty drastically, and with the clock running out, it’s hard to see how they would be able to pass muster without a miracle. This is largely the case because from the numbers it appears that they have continued to not take loaning in lower income areas seriously. They claim that they have made some big community development loans and they have purchased some community development loans.
CRA was about raising all boats in lower income neighborhoods, especially for families, and not just shoring up some remote islands to look over vast oceans of poverty starved for loans and investment. Looking at the public file, CNB/RBC seems to be betting and believing that the OCC/FDIC proposal has already succeeded, and that there will be no consequences to their failure to live up to their loan commitment to low income families and their neighborhoods.
The OCC/FDIC proposal must be stopped or the failure of CNB/RBC will be the rule, not the exception, and once again lower income families will be left in the cold while banks preen and pretend to have served the purposes of their charters.
Wade Rathke is founder and chief organizer of ACORN and ACORN International. You can find Wade’s recent past posts here Chief Organizer Reports. And you can link to his website here Chief Organizer ACORN/ACORN International