Bank regulators are holding hearings that could potentially improve the Community Reinvestment Act. The 1977 law was designed to ensure that banks remained connected to the communities they serve. Banking and finance have evolved significantly since that time, and the banking regulators have decided that it may be time to update how this law is enforced. They have been holding public hearings for about a month, and the last of these takes place on Tuesday, Aug. 17, in Los Angeles.
The Los Angeles hearings are being coordinated by the Office of the Comptroller of the Currency, one of the four agencies doing the review, and focus on Small Business and Consumer Lending, CRA Data Collection, Reporting and Disclosure, and Performance Evaluations. A number of local figures will be testifying, including a statement from L.A. 7th District Councilman Richard Alarcon, the leading proponent of L.A.'s responsible banking ordinance initiative.
Right now the entire country is a basket case of nerves, with economists arguing over what the shape of the dip is that we are suffering through while the administration's economists hang on to the notion that there is a big government "retread deal" of some sort to spend our way out of it. All well and good to arguing academically, but that doesn't cut it on Main Street where businesses won't invest because there's no strategy looking ahead other than kicking cans down the road, families short selling their dreams and exiting the middle class, and reluctant banks that won't -- not can't -- lend because their internal loan to value criteria pretty much disqualifies the very people and businesses the country needs to be investing in the most.
It just bothers me that increasingly the people able to access our massive pile of frozen wealth are the ones who need it the least. That we are some sort of macabre journey to retrench the wealth of the middle class and redistribute it to the landed classes challenges my sensibilities when I know we are capable of better. There has to be a way found that can recover our economy where it doesn't have to go through some circuitous trickle down pathway. And remember that at this point it's the Obama administration and the Congress in session that are letting this happen. I'm beyond the silly notion that anyone else is to hold responsible for any lack of progress we continue to suffer from.
So here's one prescription that might help fix this mess. If state, county and local governments reallocated portions of their monies and a program could be designed to place that money into banks that show strong indications of being involved in the economic recovery of their communities, this might be a way to focus more of the nation's wealth into the rebuilding of core industry and accompanying multipliers we so desperately need. Regional governments placing large deposits directly into qualified institutions create what is known as a "volatile deposit" that has implied expectations on how those deposits will be employed. Federal Home Loan Bank Advances have similar implied effects by the nature of their bulk on a bank's liabilities sheet. It's the kind "Move Your Money" leverage that has the potential to make Wall Street pay attention to Main Street, and I believe it's a potentially game-changing strategy worth taking a closer look at.
For regional governments to accomplish this important mission, they need uniformly collected information on banks at the operating branch and zip code levels of detail. The FDIC has done annual collections of deposit data by the branch level in the past. It's a tool that works very well and one that I believe can be enhanced to get us what we need. To this end, I had my company submit written comments to the Community Reinvestment Act Regulation Hearings that encourage regulators to pursue specific enhancements in data collection that will enable states, counties and municipalities to more effectively pursue "going local" initiatives for their communities. This is important if these regional governments are to play their part in exerting greater uniform pressure on the banking and finance system to cease squeezing the life out of the U.S. industrial base and home ownership sectors and get back on track towards helping the country recover and prosper.
If the federal apparatus does not act, then these regional governments will be forced to capture information piecemeal -- and they should do so -- in order to fend for their neighborhoods. But the slower path will only serve to prolong the process of kicking the can down an already dip ridden road longer than it needs to be. We can do something about it if we put our collective national interests first for once. What say you?
To read the Institutional Risk Analytics technical submittal to OCC Docket ID OCC-2010-0011 request for comments to Session 4 of the Community Reinvestment Act Regulation Hearings, please click here.
1. The Los Angeles hearings were viewable via live streaming video during the hearings. See http://www.fdic.gov/news/news/press/2010/pr10188.html for more details.
2. Public comments can be submitted until August 31, 2010. See http://www.ffiec.gov/CRA/hearings.htm for instructions. Bearing in mind that the world of bank regulation commentary almost never hears from ordinary people, I think it'd be novel if the public record turns out to be a bit more democratic for once.
For more information on Move Your Money go to www.moveyourmoney.info.