NCPA - National Center for Policy Analysis

Revising the Community Reinvestment Act

May 11, 1999

Former Federal Reserve governor Lawrence B. Lindsey helped write the Community Reinvestment Act regulations. Now Sen. Phil Gramm (R-Texas), chairman of the Senate Banking Committee, is promoting reforms to the law. While Lindsey is less critical of the present law than Gramm, he finds the Senator's reforms "quite modest."

The Community Reinvestment Act requires banks to serve their entire community -- ensuring that loans are made in low- and moderate-income neighborhoods. Although Gramm's reform attempts have raised howls of protest from President Clinton, the Rev. Jesse Jackson and Ralph Nader, Lindsey says Gramm "is getting a bum rap" in response to his "mild" proposals.

  • Gramm proposes that a bank that has earned "satisfactory" ratings from the regulators for three years running be presumed to be in compliance with the law, unless evidence is presented to the contrary.
  • He proposes that small rural banks -- which represent only 2.8 percent of U.S. banking assets -- be exempt from CRA, because of the burdens of complying with the regulations.
  • The real reason the Clinton administration and others are sponsoring "a campaign of exaggeration" against Gramm's modest reforms, Lindsey believes, is that he wants the regulations entrusted to the Federal Reserve -- which is independent of the administration -- rather than the comptroller of the currency, who reports to the Treasury secretary.

Last month, hundreds of "community activists" descended on Gramm's house to protest his stand. They pounded on the windows, trampled the landscaping and left the front yard full of garbage.

Lindsey writes that "the community-development industry is finally coming of age" and that the radicalism of those who are opposing Gramm "poisons the well of goodwill that makes community reinvestment possible."

Source: Lawrence B. Lindsey (American Enterprise Institute), "Clinton's Cynical War on Banking Reform," Wall Street Journal, May 11, 1999.


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