Mark Willis on how to bring reinvestment policy to the 21st century:
The world of banking and of community development is very different than it was in 1977 when Congress enacted the Community Reinvestment Act (CRA). Thirty-two years ago–with cities still in an urban crisis of broad economic decline and with civil-rights legislation only a dozen years old–CRA laid out an affirmative obligation for banks to expand access to credit in local service areas for “underserved” communities. Under pressure from both activists and regulators, banks significantly increased their investments in neighborhoods formerly written off, and bankers commenced constructive dialogues with community groups. In these terms, CRA has been a success.
Today, however, the regulatory tools of CRA are a poor fit with the machinery of the new world of mega-banks and mortgage finance that evolved since the 1990s, let alone the wreckage of the industry after the crash. The core CRA concept of a bank’s local service area hardly fits a Bank of America or a Wells Fargo. The three largest banks in the country now hold almost 30 percent of the nation’s total deposit base. In recent years, loosely regulated non-bank competitors such as the mortgage companies that helped fuel the explosion of sub-prime home mortgages were able to capture significant chunks of the marketplace. CRA-regulated depository institutions’ share of household assets and consumer loans both have fallen roughly 40 percent over the last three decades.
