Community Reinvestment Act - CRA

Referring to the The GLBA, enacted November 12, 1999, The Clinton Administration stressed that it "would veto any legislation that would scale back minority-lending requirements."

This meant that banks would be denied the ability to expand through merger, acquisition or branching unless each party received a good rating from the Community Reinvestment Act ... people.

The CRA 'people' are:
The Federal Reserve
The Federal Deposit Insurance Corporation (FDIC)
The Office of the Comptroller of the Currency (OCC)
The Office of Thrift Supervision (OTS)
and finally The Federal Financial Institutions Examination Council (FFIEC) coordinates the CRA efforts of these four. (The FFIEC's website hasn't been updated since 2007.)

The CRA was originally signed into law by President Jimmy Carter in 1977. It's purpose was to reduce discrimination in the credit and housing markets. You had:

• The Fair Housing Act of 1968 - to prohibit discrimination on the basis of race, sex, or other personal characteristics.


• The Equal Credit Opportunity Act of 1974 - same thing - to prohibit discrimination on the basis of race, sex, or other personal characteristics.


• The Home Mortgage Disclosure Act of 1975 - required that financial institutions publicly disclose mortgage lending and application data.


• The Community Reinvestment Act of 1977 - to ensure the provision of credit to all parts of a community, regardless of the relative wealth or poverty of a neighborhood.

In writing the CRA, Congress apparently didn't say how to ensure that banks and savings associations serve the credit needs of their local communities - the law just said to do it. And little by little, community groups organized to take advantage of their right under the Act to complain about law enforcement of the regulations.

To me, it's kind of like Congress told the banks to make their neighborhood people happy, and the people lined up at the banks, saying "Ok, it's a law now - make us happy." But how? The obvious answer was to make loans to people who otherwise wouldn't have qualified to borrow money - or buy a house. Because the "relative wealth or poverty of a neighborhood", in my opinion, can only be determined by the people who occupy it.

Mandatory Loans ....

A fellow named Barak posted an interesting article at 24hourcampfire.com called The Federal Reserve's Self-Imposed Dilemma - Gary North. (Barak listed the source.)

watch4bear, another member at 24hourcampfire made this comment about the article: "...Mandatory loans to unqualified borrowers, with zero collateral, and waived mortgage insurance, busted the bank. Ours, and other investing countries. Those responsible should be tried before the world court for collusion, and intent to defraud."

It was that phrase, "Mandatory loans" that started me off on this tangent - my quest for National Economic Understanding. Who was responsible for making bank loans mandatory? What an outrageous notion! Watch4bear pointed me in the right direction - the Gramm-Leach-Bliley Act.

The GLBA, enacted November 12, 1999, repealed part of an old law that prohibited a bank from offering investment,commercial banking, and insurance services all under one roof, so to speak. The GLBA made this legal again, and is how conglomerations like Citigroup (Citybank and Traveler's) are able to operate legally.

But the GLBA is beside the point when it comes to "mandatory loans", so I waded through the Wikipedia stuff and found exactly what I was looking for. I posted it on Barak's thread:

"Crucial to the passing of this Act was an amendment made to the GLBA, stating that no merger may go ahead if any of the financial holding institutions, or affiliates thereof, received a "less than satisfactory" rating at its most recent CRA [Community Reinvestment Act] exam", essentially meaning that any merger may only go ahead with the strict approval of the regulatory bodies responsible for the Community Reinvestment Act (CRA).

This was an issue of hot contention, and the Clinton Administration stressed that it "would veto any legislation that would scale back minority-lending requirements."

So this story really has nothing to do with the GLBA, and everything to do with the Community Reinvestment Act.