Statement by Lawrence B. Lindsey, Member, Board of Governors of the Federal Reserve System before the Subcommittee on Consumer Credit and Insurance of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, October 21, 1993

Federal Reserve Bulletin, December 1993 | Go to article overview

Statement by Lawrence B. Lindsey, Member, Board of Governors of the Federal Reserve System before the Subcommittee on Consumer Credit and Insurance of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, October 21, 1993


I appreciate the opportunity to appear before this subcommittee to discuss the Community Reinvestment Act (CRA) and the current efforts of the agencies to strengthen and improve its administration. This statute has become an extremely important part of the landscape of financial institution supervision in recent years. Across our nation it has affected the relationship between thousands of banks and thrift institutions and their communities - particularly low- and moderate-income neighborhoods. Both large and small institutions have struggled with the law's demands. Local groups have aggressively used the law - particularly in the applications process - to prompt commitments for increased lending to those who may have been overlooked before. The regulators have sought to enforce the law fairly and fully in the face of the enormous diversity that exists among America's communities and its financial institutions.

The results of the CRA have seldom been to the full satisfaction of either the covered institutions or community groups, and the President has directed that the agencies conduct a thorough reexamination of our supervisory approach. This is a zero-based review that will take into account the views of all affected parties. In doing so, it is important to start from a common understanding of the road we have traveled since the statute was enacted in 1977.

Impact of CRA

Although the total impact of the CRA is very hard to measure, I believe a fair assessment would have to conclude that it has generally made many depository institutions more responsive to the needs of their communities. Of course, the level of effort has varied widely among institutions. Certainly it has not cured the disinvestment that plagues many of our cities. But the CRA has, in my view, been very instrumental in opening channels of communication between banks and thrift institutions and previously underserved segments of their communities. New relationships have been established with community groups and individuals, new products have been designed and marketed, and many thousands of credit applications have been taken from those who previously had no banking relationship. Most important, I am convinced that thousands of loans have been made throughout the United States that would not have been made but for the CRA. I have personally traveled to many communities and toured numerous projects that are now helping to stabilize and revitalize communities as a result of the CRA. In addition, numerous witnesses from consumer and community organizations at hearings held recently have testified to the valuable contributions the CRA has made.

But exactly what is the overall level of that lending? I do not know, and I suspect that no one does. The community groups who track lending agreements with institutions point to more than $30 billion in commitments for new credit. Many of these commitments cover several years and therefore extend into the future. Moreover, I know of no overall assessment of the extent to which the commitments have been realized. Although formal commitments to community groups get considerable media attention, I suspect that most CRA-related activity goes on outside the high profile negotiated agreements that receive so much attention. My own belief is that the true impact of the CRA has far exceeded any number derived strictly from the formal commitments. If the figure is, for example, double the committed amount, it is a formidable amount indeed, and this fact should not be overlooked as we evaluate the CRA's effectiveness.

Whatever the degree of new lending attributable to the CRA, it has not been accomplished without numerous problems, which I will refer to later. But before doing that, an important point about the CRA is often lost in the debate about its flaws. If this federal statute has, in fact, had the considerable impact I have described, it is important to note that this has been accomplished without a huge appropriation of government dollars and without legions of bureaucrats to administer the program. …

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Statement by Lawrence B. Lindsey, Member, Board of Governors of the Federal Reserve System before the Subcommittee on Consumer Credit and Insurance of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, October 21, 1993
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