[Congressional Record (Bound Edition), Volume 145 (1999), Part 6]
[Senate]
[Page 8977]
[From the U.S. Government Publishing Office, www.gpo.gov]




                       COMMUNITY REINVESTMENT ACT

 Mr. FEINGOLD. Mr. President, I want to offer a few comments 
about one of the most important issues we have considered as part of 
the so-called financial modernization debate, namely the Community 
Reinvestment Act or CRA. It gives me particular pleasure to discuss CRA 
because it was authored by the former Senator from Wisconsin and Senate 
Banking Committee Chair, William Proxmire. CRA is over twenty years old 
now, and by all accounts it has been a success.
  Banks have a special role in our free market system; they are the 
rationers of capital. For this reason and others we grant banks a 
number of special privileges, such as public charters, taxpayer-backed 
deposit insurance, and access to the discount window at the Federal 
Reserve. CRA is grounded in the philosophy that we grant these 
privileges in part to assure that banks will serve the public--all of 
the public in all parts of our communities.
  In the context of last week's debate over so-called financial 
services modernization, the concept that we should require banks to 
actively find lending opportunities in communities they serve is all 
the more appropriate. The globalization of financial services, and the 
new structures proposed for financial institutions, increasingly means 
local institutions have ever expanding and increasingly distant 
opportunities for their loan portfolios. CRA serves as a reminder that 
ultimately we grant rights and privileges to banks in part to ensure 
consumers and businesses in our communities have access to financial 
services.
  I have been interested in CRA since the early 1980s when I became 
Chair of the Banking Committee in the Wisconsin State Senate, and while 
it is not perfect, CRA has clearly helped give under served communities 
increased access to financial services. And it has done a great deal to 
foster economic development, both for individual families, and for 
neighborhoods and communities through home ownership and community 
development financing.
  As noted in a recent report by the Wisconsin Rural Development 
Center, for many low-income and minority groups, home ownership is a 
way out of poverty. Equity built through home ownership can be used to 
finance a start-up business, pay for a college education, fund a secure 
retirement or consolidate high interest rate debt. The report went on 
to note that home ownership in low-income neighborhoods can provide 
stability, increase pride and property values, and attract new capital.
  CRA has helped foster access to financial services in each of these 
areas. Commitments by banks to home ownership, small business, and 
community development has increased because of CRA. According to 1997 
Home Mortgage Disclosure Act data, lending to minority and low income 
borrowers is increasing. Since 1993, the number of home mortgage loans 
to African Americans increased by 58 percent, to Hispanics by 62 
percent, and to low and moderate income borrowers by 38 percent.
  In 1997, financial institutions subject to CRA reporting requirements 
made 2.6 million small business loans for a total of $159 billion, two-
thirds of small business loans made that year, and more than one-fifth 
of those loans were made to small businesses in low and moderate income 
communities.
  And, in 1997, large commercial banks made $18.6 billion in community 
development investments.
  Altogether, nonprofit community organizations estimate that since 
1992 the private sector has pledged over $1 trillion in loans going 
forward for affordable home ownership and community development.
  I have no doubt that CRA was responsible in great part for this 
record. And neither does Federal Reserve Board Chair Alan Greenspan. At 
a House Banking Committee hearing earlier this year, Chairman Greenspan 
testified that CRA has ``very significantly increased the amount of 
credit in these communities'' and that changes have been ``quite 
profound.''
  It is important to note that CRA has succeeded in encouraging banks 
to serve those who have been financially under served without 
jeopardizing the safety and soundness of the institution. As Robert 
Kuttner has noted, in the decade after CRA, we learned that financial 
institutions often make costly mistakes, but lenders faltered in the 
1980s not by being too kind to the inner city, but by making 
speculative loans in remote locations they knew little about, and by 
competing recklessly for market share. By comparison, the local Jimmy 
Stewart type loan looked pretty solid.
  As Chairman Greenspan noted, ``there is little or no evidence that 
banks' safety and soundness have been compromised by (low- and 
moderate-income) lending and bankers often report sound business 
opportunities.''
  In fact, CRA is a tool that can help banks. As former Federal Reserve 
Board Governor Lawrence Lindsey said, ``CRA-related activities can help 
develop new markets, potentially profitable business, and improve a 
bank's public image.''
  Let me note that there have been some improvements to CRA. In 
response to the very real problems facing many smaller community banks, 
a streamlined CRA process was approved a few years ago, and I was proud 
to support those changes and I understand the paperwork burden on 
smaller banks has been reduced as a result. Over 80 percent of banks 
covered by CRA qualify for the streamlined performance standards for 
small banks and thrifts, and I understand that actual time spent in 
community banks on CRA examinations has been reduced by 30 percent.
  CRA has helped improve financial services for under served 
communities, but there is still significant room for improvement. Many 
still have few financial options, and as the Wisconsin Rural 
Development Center has found, in the absence of adequate financial 
services from traditional lenders, there has been an increase in so-
called subprime or predatory lending from lenders who target homeowners 
with less than perfect credit with high-cost, sometimes fraudulent, 
mortgage servicing products.
  We owe a great deal to Senator Proxmire and his creation. As we 
consider legislation to change the structure of our financial 
institutions, we must not lose sight of the original goals of CRA, 
namely that those institutions which enjoy the special privileges and 
protections afforded by the government have an obligation to ensure 
that the entire community has access to financial services.

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