Community Development Innovation Review

When the Community Reinvestment Act (CRA) was enacted in 1977, low-income American communities, especially in cities, were suffering from disinvestment and a lack of credit availability. The CRA requires banks and thrifts operating in and near those communities to lend in them, consistent with safe and sound operations. Since 1977, the financial services system and financial needs of low- and moderate-income consumers have changed dramatically.

More than 30 years ago, before passage of the Community Reinvestment Act (CRA), relatively few banks made meaningful numbers of loans to people with low and moderate incomes.

As in the environmental protection context, a tradable obligation approach to the CRA has the potential to enhance the provision of financial services to low and moderate-income communities at lower cost than does the current command-and-control approach.

Banks are in the business of financial intermediation—of bringing together those with capital and those who need capital. We do not build communities on our own, but it is fair to say that few communities in America are built—and none prospers—without banks playing their important role of putting savings to work.

The Community Reinvestment Act (CRA) of 1977 has survived more than three decades of restructuring of the banking industry, of sporadic changes in the regulations, and of an evolution of best practices in community development. The CRA has seen many successes but is now in need of a major overhaul if it is to continue to play a meaningful role in strengthening low- and moderate-income (LMI) communities.

The Community Reinvestment Act (CRA) of 1977 responded to charges of redlining and discrimination by financial institutions.

The financial landscape has changed significantly since the passage of the Community Reinvestment Act (CRA) in 1977. In this paper we provide an overview of how these changes have affected the coverage of the CRA, the structure of CRA-regulated institutions, and their effectiveness in meeting the goals of the CRA.

In deference to concerns about unsound and unprofitable loans, the CRA did not establish specific benchmarks or levels of credit, nor did it provide much guidance as to how regulators should evaluate bank performance. Instead, the CRA created an affirmative obligation for banks to reinvest in poor communities.

The Federal Reserve, together with the other federal financial regulatory agencies, has had some experience in addressing the credit needs of underserved communities, using the Community Reinvestment Act (CRA) as our guide.

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 low- and moderate-income (LMI) communities.