Cra's 25th Anniversary: The Past, Present, and Future
This paper focuses on the past, present, and future rules and regulations implementing CRA as developed, applied, and enforced by the federal bank and thrift regulators. The past rules and regulations refer to those in effect during the law's first 18 years, through 1995, when CRA underwent its first major reform. The present CRA rules and regulations were adopted then, with the mandate that they would be reviewed for possible reform in 2002. The future rules and regulations are being drafted now by the regulators, based on their review of approximately 400 public comments; the reform recommendations should be released sometime during the second half of 2002. The future of CRA's legacy as arguably the perfect fair market regulation in a world of Compassionate Capitalism will depend upon the direction of these reforms. Optimal public policy by the bank and thrift regulators in this regard must represent the ideal balance between competing consumer and industry interests. This paper represents the first comprehensive analysis of the public comments and concludes with specific recommendations that will lead to optimal public policy.
The Past, Present and Future of Community Reinvestment Act (CRA): A Historical Perspective
This paper takes a historical approach to understand the evolution of one of the most controversial banking regulations in recent history, the Community Reinvestment Act (CRA) of 1978 and its effects on access to credit and banking services to community borrowers. The paper lays out the historical milieu of credit markets in the late seventies and describes the early justification of this legislation. The paper explores the implementation of the act through regulations on lending institutions and the effects of the regulations on depository lenders and community borrowers. Detailed description of the reactions to CRA regulations by different parties involved in the act is provided. This reaction and consequent revisions to the regulations have contributed to keep the act effective and relevant. In addition to the reactions, the act has responded to the structural reorganization and regulatory changes in the banking sector and mortgage markets in particular. The paper illustrates this dynamic nature of implementation, reactions and revisions that has shaped CRA regulations over last quarter century. The paper argues that historical understanding and justification is important to formulate future changes to the regulation. This understanding is important to keep the act objective, measurable and enforceable. While inclusion of all possible requirements that may enhance community lending is not the correct approach to future changes in CRA, keeping the act static to its initial requirements is also not appropriate from public policy standpoint. A balance between the two should guide the future changes to the act. Finally, the paper points out the trends in community lending and suggests some of the future changes to the regulation.
The Expanding Geographic Reach of Retail Banking Markets
In the view of most policymakers and economists, competition in retail banking takes place in local markets the size of a single county or metropolitan area. This article presents evidence that the locus of banking competition has in recent years shifted to larger geographic arenas. The author's review of 1997 survey data reveals that many banks set uniform rates for both deposits and retail loans across an entire state or broad regions of a large state. Regression analysis of the relationship between retail deposit rates and measures of market concentration further supports this expansion in market size: the clear relationship that earlier studies detected between individual banks' deposit rates and measures of concentration at the local level is no longer evident, while a relationship does emerge at the state level.