Academic journal article Federal Reserve Bulletin

Statements to Congress

Academic journal article Federal Reserve Bulletin

Statements to Congress

Article excerpt

Statements to Congress

Statement by Martha R. Seger, Member, Board of Governors of the Federal Reserve System, before the Subcommittee on Consumer and Regulatory Affairs of the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, June 7, 1989.

Thank you for the opportunity to provide the views of the Board of Governors of the Federal Reserve System on legislation relating to the Community Reinvestment Act (CRA), the Government Check Cashing Act of 1989, and the Basic Banking Services Access Act of 1989.

The CRA revisions in S. 909 would require that the numerical ratings and a written assessment of an institution's CRA performance be made available to the public. In addition, S. 906 would require depository institutions to cash government checks at cost for noncustomers provided that such persons have registered with the institution. S. 907 adds the requirement that depository institutions offer, for minimal fees, "basic financial services accounts" that have low minimum balance requirements and that they permit at least ten withdrawals per month.

COMMUNITY REINVESTMENT ACT

To preface our discussion of the legislation pertaining to the CRA, I would like to underscore our belief that the purpose of the CRA can best be accomplished in an arena that is, as much as possible, open to public view and input. Recent actions by the Board in concert with other regulators have echoed a theme that seems to be at the heart of the proposals before you today--that people who are well informed about the activities of their local financial institutions are better equipped to participate effectively in the CRA process. We are also committed to widening the channels of communication among banks, their communities, and regulators, but we believe this should be done without making the regulatory mechanisms and procedures for the CRA more complicated, costly, or apt to impose delays on those institutions with good records of performance.

I will begin by describing briefly the three-faceted program that we have established to carry out our mandate in enforcing the CRA. First, the Federal Reserve's specialized consumer compliance examiners conduct examinations of CRA performance about every 18 months for most state member banks, and more often for those with identified weaknesses in their record. The examination takes a comprehensive look at the bank's activities to address credit needs in its market, including those of low-and moderate-income areas, as well as the kinds of relationships it is forging with specific segments of the community. Second, through the community affairs office at each of the Reserve Banks, we provide information about community development strategies and techniques to banks, bank holding companies, and others. One of our primary goals is to become familiar with the credit needs within the Federal Reserve Districts, and then help banks construct programs that respond to those needs. Third, we consider the CRA record of banks in connection with applications received under the Bank Holding Company and Bank Merger Acts; CRA performance is taken into account along with legal, financial, managerial, and competitive factors.

Our commitment to enhancing the role the public plays in the CRA process has been a long-standing one. For more than 10 years, we have endeavored to ensure that CRA examinations are not conducted in a regulatory vacuum--Federal Reserve examiners routinely interview business people, government officials, and housing and other community group leaders in the bank's community to learn about the local economic environment and the perceptions these individuals hold of their local financial institutions. We require institutions to keep a file of letters commenting on their CRA performance from members of the community; examiners review those letters, as well as the institutions' responses to them. Careful attention is also given to public comments on CRA performance, or protests, received in connection with an application. …

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