Recently the House Banking subcommittee on financial institutions approved a comprehensive overhaul of the nation's banking system. The proposed legislation, intended to strengthen the banks and the economy, permits industrial ownership of banks, allows commercial and investment bank mergers and makes it easier for banks to open new branches across state lines.
The subcommittee, however, also struck a hard blow against the economic well-being of low-and moderate-income neighborhoods all across America, including large areas of Los Angeles, by significantly weakening the 1977 Community Reinvestment Act. CRA is the legislation that requires financial institutions to meet the credit needs of the entire community, including low- and moderate-income neighborhoods. The subcommittee voted to exempt small- and medium-sized banks from the act, which account for more than 75% of the nation's banks.
In addition, the subcommittee voted to exempt for two years any bank that receives an outstanding or satisfactory rating under the act for the previous two years. A representative of the Bush Administration indicated that the President will support these changes. So it is up to the members of Congress to delete them.
Sadly, this weakening of a law, which helps provide fairness in lending and which has been the best antidote to redlining--the refusal of some lenders to make loans in certain low-income neighborhoods--takes place only two years after the regulatory agencies had issued a joint set of guidelines to require banks to disclose their level of CRA involvement.
In this city we have many neighborhoods that are dying for lack of businesses, industries, jobs and decent affordable housing. They are dying, in large part, because they lack access to capital.
Ironically, but perhaps not coincidentally, the weakening of the Community Reinvestment Act takes place when the public finally has the disclosure tools to measure the actual financial response of the banks to their obligations under the 1977 law. The members of the entire Banking Committee, or if necessary the members of the House as a whole, should vote to reverse the subcommittee's action. It is critical for many of the residents of our city and of our country that they do so.