The Community Reinvestment Act (CRA), enacted in 1977, requires the Federal Reserve and other federal banking regulators to encourage financial institutions to help meet the credit needs of the communities in which they do business, including low- and moderate-income (LMI) neighborhoods.
What was the purpose of the Community Reinvestment Act of 1977 *?
Congress enacted the Community Reinvestment Act (CRA) in 1977 to encourage banks and thrift institutions to “serve the convenience and needs of the communities in which they are chartered to do business,” including low- and moderate-income (LMI) communities, and to do so in a manner “consistent with the safe and sound …
Did the Community Reinvestment Act CRA lead to risky lending?
Yes, it did. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.
Did the Community Reinvestment Act cause the financial crisis?
If the CRA did contribute to the financial crisis, it was small. An MIT study found that banks increased their risky lending by about 5 percent in the quarters leading up to the CRA inspections. These loans defaulted 15 percent more frequently.
Was the Community Reinvestment Act successful?
Other studies find that the CRA has been effective in encouraging financial institutions to lend to redlined neighborhoods. Several analyses conclude that the CRA had a positive influence in encouraging lending to low- and moderate-income borrowers and in low- and moderate-income neighborhoods.
Who develops a CRA strategic plan?
In lieu of one of the three primary evaluation methods, the CRA regulations provide banks the option to develop a strategic plan with the input of the community. Strategic plans allow banks to tailor their performance goals to the needs of their community by working directly with the community to develop the goals.
Are credit unions subject to the Community Reinvestment Act?
The CRA is intended to encourage for-profit banks to meet the needs of borrowers in their communities, including in low- and moderate-income neighborhoods. Credit unions’ consumer-focused model is self-regulating, and that is why credit unions are not covered by CRA.
What did banks do before the Community Reinvestment Act?
Before the CRA, many banks did not market their lending products and financial services to LMI neighborhoods.
Why was this 1977 law did not create the 2008 financial crisis?
Why This 1977 Law Did Not Create the 2008 Financial Crisis. The Community Reinvestment Act encourages bank lending to low- and moderate-income neighborhoods. Enacted in 1977, it sought to eliminate bank “redlining” of poor neighborhoods. That had contributed to the growth of ghettos in the 1970s.
When was the Community Reinvestment Act of 1977 passed?
Community Reinvestment Act of 1977. The original Act was passed by the 95th United States Congress and signed into law by President Jimmy Carter on October 12, 1977 (Pub.L. 95-128, 12 U.S.C. ch.
When did the Federal Reserve start the community affairs office?
In 1981, to help achieve the goals of the CRA, each of the Federal Reserve banks established a Community Affairs Office to work with banking institutions and the public in identifying credit needs within the community and ways to address those needs.
