Oversimplified CRA metrics would damage local responsiveness and lessen social impact
We are deeply concerned by Comptroller Joseph Otting’s proposed changes to the Community Reinvestment Act (CRA), the subject of today’s hearing by the House Financial Services Committee. The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have set forth a proposal that must be reevaluated to preserve the fundamental purpose of CRA – to address inequalities in bank lending and to drive investments toward impactful community development activities.
CRA is essential to the work of mission-driven Community Development Financial Institutions (CDFIs), and its impact is substantial. In 2018, banks invested nearly $4 billion in CDFI loan funds who are members of the Opportunity Finance Network –an increase from less than $1 billion in 2005, and nearly half the debt capital collectively deployed to finance desperately needed affordable housing, small businesses and community facilities primarily benefiting low income communities.
Changes to CRA proposed by the OCC and FDIC are fundamentally flawed because they:
- Gut Local Responsiveness – The proposed one-ratio measure and expanded list of CRA-qualifying activities would enable banks to shift away from responding local needs. Instead, banks would receive credit for an expanded list of CRA-eligible investments in infrastructure, Opportunity Zones, and even sports stadiums. Such a framework gives banks little incentive to support CDFIs—undermining a quarter-century of effective Treasury Department investment in the sector– or invest in small high-impact projects that truly benefit low-and-moderate-income Americans.
- Discount Social Impact – Impactful community development projects often require innovative and complex financing. This is especially true where CDFIs pioneer strategies to address community needs banks are unwilling to explore—such as healthy food outlets, childcare facilities, and community health centers. The proposal removes any incentives for banks to provide this crucial, early-stage capital The one-ratio framework makes even the proposal’s attempt to incentivize high impact investments—through a 2X multiplier—nearly certain to backfire: Banks can simply receive the same CRA credit for half their current volume.
- Divide Regulatory Agencies– While OCC and FDIC continue to advocate for this flawed approach, the Federal Reserve Governor Lael Brainerd has suggested a different way that could recognize the need to modernize CRA while maintaining strong measures for local accountability. The lack of alignment between the three regulatory agencies undermines the goal to improve CRA, and creates confusion for all stakeholders—banks, communities, CDFIs and others.
Our four organizations are committed to working with regulators to identify workable solutions that best support low- and moderate-income communities. We strongly urge Comptroller Otting and the FDIC to collaborate with the Federal Reserve Board on a joint proposed rule.
Joint Statement by:
- IFF CEO Joe Neri
- Capital Impact Partners President and CEO Ellis Carr
- Low Income Investment Fund CEO Dan Nissenbaum
- Reinvestment Fund President and CEO Don Hinkle-Brown
Capital Impact Partners, IFF, Low Income Investment Fund (LIIF), and Reinvestment Fund are four of the highest capacity CDFIs in the nation. Over three decades, our combined $8.3 billion in investments—$707 million in 2018 alone—have supported projects in 46 states, Puerto Rico and the District of Columbia.
About Reinvestment Fund
Reinvestment Fund is committed to building strong, more equitable communities by making health, wellbeing, and financial security available and accessible to families, regardless of income or zip code. We integrate data, policy and strategic investments to improve the quality of life in neighborhoods. Using analytical and financial tools, we bring high-quality grocery stores, affordable housing, schools and health centers to the communities that need better access-creating anchors that attract investment over the long term and help families lead healthier, more productive lives. Learn more at reinvestment.com.