Lindsey on CRA and Fair Lending
As the Federal Reserve's point man on consumer and community affairs, Governor Larry Lindsey has his hands full with fair lending and Community Reinvestment Act reform. His involvement in those two issues has put him in the media spotlight more often than any other Fed figure except Chairman Alan Greenspan.
At times, Lindsey has been at odds with the Clinton Administration and other bank regulators. And he has been criticized for his and the Fed's positions. Yet he stands firm behind the central bank's efforts to improve CRA and eradicate lending discrimination.
Lindsey discussed the issues recently with Independent Banker Associate Editor Elmer Ramos. They met in Lindsey's office, on the second floor of the Fed's Eccles Building in Washington.
Independent Banker: Did you have any inkling that CRA reform would be this difficult or take this long?
Lindsey: I knew it wouldn't be a straightforward process. There are some dilemmas that I had guessed at in the beginning but have since become obvious.
The first has to do with the desire of the President to have objective criteria, which of course sounds quite reasonable. The problem is that if you're going to have standards that are objective, they really have to be able to be applied in every banking market in the country. They have to work in Oshkosh and Omaha and every other city from A to Z. It's very difficult because even two cities with relatively similar characteristics actually may have very radically different CRA types of problems.
The problem with objectivity is that with it comes kind of a uniform standard that runs in the face of the variety of markets that actually make up the United States banking system. That's really a hurdle we'll never be able to cross.
The second hurdle we'll never be able to cross is the answer to the question, "How much is enough?" To a large extent, that is a political question. The President said he wanted more emphasis on lending, particularly in the inner cities. That gives a direction, but it's a new hurdle.
IB: We hear so much about what's wrong with CRA. What's right with CRA?
Lindsey: We're talking about a program that involves an average of $5 billion or $6 billion of net commitments by banks every year. And yet the size of the federal bureaucracy used to administer that is very, very small. It is administered with a relatively light hand as far as Washington goes. Bankers are out there making the decisions as to which projects are best for their communities, with at least an eye to profitability or getting their money back.
So if your standard is going to be what we do here in Washington, then this is an extremely efficient program. It's moving a lot of money to a politically desired task using relatively few bureaucrats and very little central direction of capital.
Now, the standard I'm using, of course, is other Washington programs, and your readers are free to be cynical about the standard. But let's keep that in mind because it really is the appropriate standard to judge CRA by.
IB: You've been very critical of the proposed CRA provision calling for banks of more than $250 million to race-and gender-code business loans.
Lindsey: I have to stress that it's not criticism as much as it is concerns and questions. And I want to make it clear I've been speaking for myself and not necessarily the Board. As a Fed governor, I obviously can't make up my mind--and I haven't made up my mind--about whether it should be in the final proposal. I wonder whether it's workable. I wonder whether it's really going in the right direction for the country.
IB: You've said that you believe race-and gender-coding could resegment the market. What do you mean by that?
Lindsey: The potential danger that could be out there is that we may start identifying applicants for credit not based on the credit needs and ability to repay, but based on what I consider to be irrelevant characteristics, which are race, gender and ethnicity. …