Battle looms over banking bill
Local government groups warn that low-income communities that rely on banks to provide reinvestment loans will suffer if Congress passes a bill to expand the nation’s banking system. Cameron Whitman, senior legislative counsel for the National League of Cities, argues that efforts by Sen. Phil Gramm (R-Texas) to deregulate the financial services industry will cripple the Community Reinvestment Act.
Since 1977, the Act has been responsible for sinking more than $1 trillion into the nation’s poorer communities. About 95 percent of those loans were made within the past six years.
Those loans could be threatened by legislation championed by Gramm, chairman of the Senate Banking, Housing and Urban Affairs Committee. His bill would effectively gut federal low-income lending regulations, says John Taylor, president of the National Community Reinvestment Coalition, Washington D.C. It also would jeopardize many of the improvements, particularly those in poor neighborhoods, that cities and towns have experienced over the past six years, he says.
With his bill, Gramm is attempting to break down the Depression-era barriers that separate banks, securities and insurance companies and allow them to merge into one entity. That entity would not be bound by regulations imposed by the CRA, which Gramm describes as a “corrupted system of legalized extortion.” He charges that community groups “shake down” banks with high CRA ratings every time the banks want to open a branch, start a new bank or engage in a merger.
Sen. Richard Bryan (D-Nev.), who serves on the Senate banking committee, agrees that the financial services industry needs to be modernized, but he says the Act should be kept intact. “I think the CRA has been good for banks and local communities,” Bryan says. “I think it has played a vital role in helping to rebuild the inner cities and to help retain their economic vitality.”
Community activists focus on a handful of provisions in Gramm’s legislation that they argue are particularly harmful to cities and counties. For example, the bill exempts banks with less than $1 million in assets from CRA requirements. Those banks represent 63 percent of all banking institutions in the country and, in many instances, are the only source of credit in a given area.
Additionally, banks that are not in compliance with CRA regulations would be allowed to merge and engage in new financial practices. (Gramm also wants to weaken the definition of “compliance” as it refers to CRA regulations.)
Gramm’s bill was passed out of the banking committee on a strictly partisan vote. It now awaits action on the Senate floor where there is strong opposition to it. President Clinton has vowed to veto the bill if it includes the CRA provisions. The CRA “has helped to build homes, create jobs and restore hope in communities across America,” Clinton has said. “The CRA is working, and we must preserve its vitality as we write the financial constitution for the 21st century.”
The House is considering a similar financial services modernization bill, but it does not contain the CRA provisions in Gramm’s legislation. The bill requires all banks within a particular holding company to have satisfactory CRA ratings. Still, some points in the House bill do worry local leaders. For instance, the legislation does not require detailed records of demographic data for small business loans and insurance sales. That makes it difficult to conduct an analysis to determine a bank’s mortgage lending and loan acceptance and denial practices. The bill awaits action in the House Commerce Committee.