From confrontation to cooperation
The CRA era begun on Oct. 4, 1977, when Congress passed the Housing and Community Development Act, which President Jimmy Carter signed into law eight days later. An omnibus package, the legislation focused on increased federal subsidies for housing.
But perhaps the most controversial part of the legislation for bankers is Title VIII, better known as the Community Reinvestment Act. CRA requires federal bank regulatory agencies to encourage banks to meet the credit neds of the communities they serve, with an emphasis on low- and moderate-income neighborhoods. Regulators have to assess a CRA record when a bank or a bank holding company applies for permission to merge with or acquire another bank, open or close a branch, or change its charter or deposit insurance funds.
CRA also allows third parties, usually community groups or nonprofit organizations, to petition regulatory agencies to deny such applications because of deficiencies in the bank's community reinvestment record.
One unwelcome outcome of this provision is the CRA protest. Whether the protest comes in the form of noisy, well-publicized picketing or intense negotiating with community groups, banks have to go on the defensive to prove they are not redlining or otherwise ignoring the needs of customers.
Two problems arise from such protests. First, there is the obvious problem of negative publicity surrounding the accusation of a questionable CRA performance--banks hardly enjoy finding their names linked to talk of unfair banking practices.
Second, CRA protests take time. "Even if you have demonstrated that your CRA record is exemplary," says Robert Bouchard, executive vice-president of Keycorp, an Albany, N.Y-based holding company, "so much time has passed that it often delays the eventual approval of your transaction for a substantial period. If a regulator can answer the generic question of whether or not a bank is a good corporate citizen, then there shouldn't be any delays in the proposed transactions."
CRA also applies to thrifts. Robert B. O'Brian, Jr., chairman of Carteret Savings Bank, Morristown, N.J., notes that thrifts are targeted because their "primary mission is to finance new housing." He feels that CRA protests are filed as a last resort tactic.
"Advocacy groups are frustrated at the dearth of affordable housing being produced, particularly in inner city locations," says O'Brien, whose institution was the target of a CRA protest last year during its acquisition of a New York insurance firm. "They're also frustrated because many of the traditional Department of Housing and Urban Development programs and other federally-subsidized programs that would have alleviated this situation have been eliminated or substantially cut back."
O'Brian's views are echoed by Roderick K. Gaines, vice-president for business and community development at Crestar Bank, Washington, D.C. "Some people feel banks should be involved in social issues, much like the federal government is. Some people view banks as an extension of the federal government and CRA as a government program that requires banks to make loans just because customers fit within a qualified census tract."
From the other side. While community groups agree that federal subsidies have been slashed, they claim that they do not view banks as the substitute source of funds.
"We've never asked the banking community to take over the role of the federal government in providing subsidies," says Ray Neirinckx, coordinator of the Rhode Island Community Reinvestment Association (RICRA), Providence. "CRA is a complement to public sector participation. We need to have the financial institutions' participation in addressing affordable housing needs because, at this point, the federal government isn't going to participate at the level it had."
Community groups agree that it is banks' responsibility to be involved in community development lending, particularly in low- and moderate-income neighborhoods. …