A Framework for Revisiting the CRA

2 The Community Reinvestment Act (CRA) of 1977 was enacted to address the concern that depository institutions had not met the credit needs of their entire communities. In many ways, the act can be credited with changing the way that banks do business in lowand moderate-income (LMI) communities. While the statute itself and the regulations that implement it have changed over the intervening decades, a re-examination of the CRA now seems particularly relevant as the financial crisis and the legislative and regulatory responses to it unfold. The banking and broader financial services industries have evolved significantly since the CRA was passed. Legislative changes, the growth of automated underwriting, and the expansion of the secondary market allowed financial institutions to grow and consolidate, while encouraging the growth of entities not covered by the CRA (see Avery, Courchane and Zorn’s article in this volume). However, alterations to the CRA have not kept up with fundamental changes in the structure of the financial services industry. The 1995 changes to the CRA regulations were intended to streamline the CRA evaluation process and make it more performance-oriented. These changes achieved their goal, in part because of the public transparency of the process, the acknowledgement of the differences in bank size, the ability to enforce other antidiscrimination statutes, and the focus on safety and soundness (see American Bankers Association article). The 2005 regulatory changes were more modest, introducing a new bank size category and revising the definition of community development. Today, the recent turmoil in the financial services industry has prompted calls for a broad re-examination of the regulation and supervision of the entire industry to ensure the safety and soundness of future lending. This re-examination has raised questions about what role the CRA should play in financial services regulation, and to what institutions the CRA ought to apply. The Federal Reserve Banks of Boston and San Francisco jointly present this publication to capture the detailed views of leading thinkers on the CRA. The contributors, including A Framework for Revisiting the CRA