While it is "high time" for regulators to modernize how they enforce the Community Reinvestment Act, their focus on keeping bank branches open must remain, Federal Reserve Governor Lael Brainard said May 18.
In prepared remarks at a New York City community development conference, Brainard said the world has changed substantially since the CRA passed in 1977. Technology innovations have affected how customers interact with banks and let banks expand their reach through digital offerings.
Still, she said, those technological changes have "not eliminated the need for branches," which along with ATMs remain critical ways for banks to reach local customers. Research from the New York Fed, she said, has shown that small business credit decreases when companies are further away from a bank. Individual customers who do not have a branch nearby also tend to turn to more expensive options, such as payday loans and check cashing services.
Regulators have started reviewing their enforcement of the CRA. The Treasury Department has recommended that regulators need to take better account of banks' digital offerings, while Comptroller of the Currency Joseph Otting has said his agency is developing a plan on CRA changes.
As that process moves forward, Brainard said regulators must remain focused on the importance of banks' local physical presence, calling it the "most important aspect of refreshing the CRA, and also the one that will require the most care."
Brainard also highlighted several other potential changes to the CRA, including ensuring that regulators' evaluations of banks' CRA performance are more consistent. That, she said, will help give banks more clarity on what kinds of activities qualify for CRA credit and how their ratings will be measured. Regulators can also simplify the CRA rules and tailor requirements according to a bank's size or business model.
They also can tweak CRA rules to encourage banks to expand in under-served communities, she said, helping ease concerns of some areas becoming "credit 'hot spots'" while others have fewer opportunities available.