All together now: Regulators tout benefits of CRA revamp

WASHINGTON — Banking regulators put on a united front in defending their revamp of anti-redlining legislation in the first time policymakers have talked about the rewrite since releasing it last month

All three major banking regulatory agencies were represented at the Urban Institute event in a show of solidarity, with acting Comptroller of the Currency Michael Hsu, acting Chairman of the Federal Deposit Insurance Corp. Martin Gruenberg and Vice Chair of the Federal Reserve Lael Brainard appearing in front of an audience in a rare COVID-era in-person event. 

Vice Chair of the Federal Reserve Lael Brainard largely led the Community Reinvestment Act revamp. Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

Banking agencies released their rewrite of the Community Reinvestment Act together —  a marked change from the Trump-era attempted solo revamp by former Comptroller Joseph Otting. Hsu alluded to previous attempts to modernize the law by emphasizing the importance for stakeholders to weigh in on regulators’ joint attempt this time. 

“This is the one that really, really matters,” Hsu said. 

Specifically, regulators highlighted the proposed rewrite’s emphasis on data-based assessments and efforts to shore up low-and-moderate income communities’ climate preparedness. They defended efforts to specifically reach minority communities, even with the notable exclusion of race-based requirements in the proposal. 

“We’re going to measure investments in a comparable, consistent way and benchmark it against the footprint of the bank for the first time,” said Brainard, who led the revamp of the CRA at the Fed and among regulators. “We will no longer be guessing what the adequate level of community investment is, we’re going to have metrics.” 

Brainard added that a more clear list of what kind of activities get CRA credit, and how much, has benefits for both banks and communities: “Banks what to know, ‘If I make this investment, how much credit will I get?’” she said. “Banks are data driven; they want those dashboards.”

“Banks get more predictability about what their expectations are, and communities also get a better ability to benchmark and say, ‘Hey, wait a second, we’re not getting the kinds of investments, we’re not getting that kind of home loans or small business loans that is the national or regional average,’” she said. 

On climate, Hsu said that under the existing rules, banks can get credit for disaster recovery. The rule rewrite gives banks credit for funding preparedness in low-and-moderate income communities, such as improving in affordable housing that might not otherwise be ready to withstand stronger and more frequent storms. 

“We’re recognizing those needs and risks and creating some space where there’s specific CRA avenues to be ready for that,” Hsu said. 

One of the more controversial aspects of the CRA revamp was regulators’ exclusion of explicit targets for credit to minority groups, instead calling for large banks to disclose the racial and ethnic background of borrowers. 

Gruenberg said this requirement is “quite meaningful,” as regulators pointed to multiple provisions they said would improve the racial equity of lending and strengthen the original intent of the anti-redlining law. 

Brainard said that the new law would distinguish between low-income borrowers and moderate-income borrowers, as well as small businesses and the smallest businesses, which she said would help more CRA funding reach minority borrowers. She also said that the CRA would “double down” on the “strong connection between fair lending and the CRA,” by strengthening the law and making banks risk a lower CRA score if they’re not more active in the space. 

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