Opinion: Financial ‘Modernization’ Hurts Neighborhoods

by Jim Buckley

In September, a Congressional conference committee will reconvene to reconcile versions of Financial Modernization legislation passed in the U.S. Senate and House. The legislation will have major impacts on financial services in this country, legalizing the Travelers Insurance and Citicorp merger and opening the door for more such mergers in the future.

The future of the Community Reinvestment Act (CRA), which was passed in 1977, is also at stake since there are amendments impacting this critical piece of legislation. A failure to modernize CRA to clearly apply to these new mega-institutions will reduce the ability of groups to use CRA to bring private-sector resources into neighborhoods like ours. Obviously, a reduction in the existing scope of CRA will even more negatively affect our neighborhoods.

The Senate legislation, ushered through by Senator Phil Gramm (R-TX), would severely restrict the ability of community organizations around the country to use CRA since it would exempt more than 60 percent of the banks in the country from CRA challenges as long as they have a satisfactory rating from their bank regulator. The House bill is viewed as CRA neutral, although it does little to expand the scope of CRA.

Either bill could reduce the amount of loan money and banking services in our area. For more than 20 years, the Community Reinvestment Act (CRA) has been a major tool in the successful preservation and improvement of communities in the Bronx and other communities around the country. The Community Reinvestment Act states that “regulated financial institutions have [a] continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.” Under CRA, regulators can deny or delay a bank’s application to merge with another bank or expand its services if the bank’s CRA review is found inadequate. Community groups around the country have utilized this language to convince banks to open new branches, make loans and create programs to preserve and improve neighborhoods. In the past 22 years, CRA is credited by the National Community Reinvestment Coalition with leveraging $1 trillion in community reinvestment around the country. Millions of those dollars and two of those new branches have come into the neighborhoods of the northwest Bronx.

Many community and religious leaders in this community have worked to bring renovation money and banks back to our area. That success cannot be taken for granted. Nor should it be demeaned as it has been by Senator Gramm on the floor of the Senate when he called CRA activists “extortionists.”

The estimated $1 trillion in CRA loans may foster an atmosphere of over-confidence about the continued availability of money for community development. Moreover, the strong economy has resulted in a large amount of funds being made available for real estate development and some of it is coming into neighborhoods from unregulated sources. For more than 20 years, the Community Reinvestment Act has provided the framework to bring bank loans, investments funds and branch services into neighborhoods and communities around the country. Without that legal framework, there is no regulatory means of ensuring the continuation of this community reinvestment work.

The unregulated sources of funds will disappear in many of our communities as soon as the economy tightens again. A weakening of CRA as per the Gramm bill would reduce communities’ leverage to bring money back into their neighborhoods. Maintaining the status quo and failing to expand CRA to include the affiliates that bank-holding companies establish will allow financial institutions to keep moving resources away from CRA regulation, reducing the leverage of communities to attract bank dollars for affordable housing and community development.

Senator Charles Schumer (D-NY) sits on the Congressional Conference Committee that will be reconciling this legislation. But all of our Congressional representatives, and ultimately the president, will be deciding on the final piece of legislation. Now is the right time for community people to be registering their feelings on the importance of the Community Reinvestment Act. The phone number for the Congressional switchboard in Washington is (202) 224-3121. Take a minute and call to support the preservation and expansion of the Community Reinvestment Act.

Jim Buckley, a Norwood resident, is executive director of University Neighborhood Housing Program.