US Fed Says Better Law Can Help Underserved Credit Areas

Federal Reserve Governor Lael Brainard

Federal Reserve Governor Lael Brainard said on Tuesday (March 12) that a more flexible look at banks through the lens of the Community Reinvestment Act (CRA) could potentially make capital available for regions outside the usual areas financial institutions cater to.

Brainard made the remarks in a speech to the National Community Reinvestment Coalition, Reuters reported. She was responding to the idea that digital tech had left the CRA’s focus on bank branches no longer viable.

Brainard said that wasn’t the case, and that local lending should be the act’s central focus, especially for areas like household mortgages.

The key, she said, would be to take allow banks to lend money “in a more expansive area” in terms of community development. Rather than competing in their own geographic areas, banks could fund rural areas or regions outside of the banks’ usual “assessment area.”

“This could be to the benefit of credit deserts — those perennially underserved rural areas or small metropolitan areas that may not have a bank branch or, if they do, may not constitute a major market for purposes of banks’ CRA evaluations,” Brainard said.

In addition, Brainard said that paying attention to the stock of an institution’s outstanding CRA loans rather than new ones every year could encourage more productive project financing. Current loans could potentially push banks more to short-term loans that could be rolled over and prop up community reinvestment scoring.

“All types of community development finance, whether in the form of a loan or an investment, have greater impact when they serve as patient, reliable, committed sources of financing,” Brainard said.

Brainard is at the head of a push to overhaul the current CRA, which was passed in 1977. It was meant as a companion to civil rights laws to stop “redlining,” where banks would not lend to certain neighborhoods.