Every year, the Community Reinvestment Act (CRA) helps federally insured regulated financial institutions meet the credit needs of the communities in which they operate.[i] To this end, CRA supports affordable housing efforts, small business and small farm development, as well as other initiatives that revitalize and/or stabilize low- and moderate-income communities. Thus, understanding how this law works is essential for banks looking to make impactful loans and investments, nonprofits seeking funding, and communities wanting to ensure their financial institutions are operating in fair and responsive ways. In sum, the CRA plays an important role in ensuring fair access to credit and other financial services both nationally as well as specifically throughout Illinois, Indiana, Iowa, Michigan, and Iowa (the 7th District).
The Federal Reserve and other regulatory agencies follow set guidelines and policies to evaluate the CRA performance of regulated banks. Each bank’s performance is measured against the unique credit needs in its defined assessment area(s), and the results of these evaluations are made public. This transparency in the process allows for more open dialogue between financial institutions, governments, and other constituents to ensure local community credit and service needs are being met.
The Federal Reserve’s commitment to CRA goes well beyond this supervisory function, however. Each Federal Reserve Bank is staffed with a team of professionals, often with advanced degrees in urban planning, public policy, finance, and law, who engage financial institutions and community stakeholders in conversations about CRA requirements, as well as broader community development issues and best practices. They serve as a conduit between financial institutions and the communities they serve by helping banks understand their CRA obligations and, perhaps more importantly, by convening meetings, roundtables, and conferences, as well as publishing targeted research to engage local and regional partners in discussing community needs.
While the CRA has been at the core of a movement away from top-down government programs towards locally-based strategies, oftentimes, its provisions are not well understood. Whether you’re a banker, community leader, or consumer, take a moment and watch this short video to get to know the CRA.
To learn more about the CRA and how the Federal Reserve System supports local and community and economic development efforts, visit: FedCommunities.org, Community Development Data Guidebook, Understanding Community Development Needs through the CRA Performance Context, and A Banker’s Quick Reference Guide to CRA.
[i] See Community Reinvestment Act (CRA), available at http://www.federalreserve.gov/communitydev/cra_about.htm.