Economic Perspectives with Hopeton Hay on KAZI 88.7 FM in Austin, TX

Banking Regulator Calls for Redesign of Community Reinvestment Act

Posted by Hopeton on April 22, 2010

Comptroller of the Currency John Dugan discussed the role of the Community Reinvestment Act during a speech on April 20 before the Federal Economic Development Forum.  A portion of his speech where he calls for redesigning CRA is excerpted below.  To read the entire speech click here.

…In light of all these changes, I think it is it time to think about redesigning CRA.  That, of course, raises a number of key questions and issues, which is exactly what I would like to put before you in the remainder of my remarks.

John Dugan

An obvious threshold question is whether CRA should be expanded to cover a broader range of entities that provide financial services affecting communities.  Is it time, as some have suggested, to consider expanding CRA to certain non-bank affiliates and subsidiaries of bank and thrift holding companies?  Or should we take a more holistic approach to activities conducted within regulated bank and thrift holding companies, recognizing that these companies have the ability to allocate many activities to different legal entities, only some of which may be covered by CRA?

Should redesign be based on recognition of the changed roles of nonbank financial services providers, extending coverage to nonbank firms that provide credit and other financial services that can meaningfully impact community well being, such as credit unions and mortgage companies?  And if we expand coverage in these ways, what would be the rationale for the expansion?

If CRA was originally premised – at least in part – on the benefit of a form of government support, deposit insurance, should an expansion of CRA be based on new types of government support that are available to financial firms other than insured banks and thrifts?  I have heard the rationale advanced that a broader range of financial services firms benefit from access to other federal programs or charter privileges that should obligate them to do more for communities.  Is access to Federal liquidity funding or access to Federal guarantees appropriate justification for enhanced CRA responsibilities?

Some advocates point to the Federal government’s support during the financial crisis to justify CRA’s expansion to a much broader array of financial services providers.  Mutual funds received temporary deposit insurance coverage.  And the TALF and TARP programs provided important market support that benefitted a range of financial firms, including investment banks and insurance companies…

To read the entire speech click here.


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