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Last month's unrest in Baltimore once again cast the spotlight on the negative cycle of crime, violence and poverty that plays out in many American cities and counties. So why aren't banks directing more of their investment dollars into the neighborhoods that need it the most? And can Community Reinvestment Act reform help push them in that direction?
May 22 -
The company, once in the crosshairs of a community group for how it complied with the Community Reinvestment Act, is aiming to raise $200 million with other banks for a fund that will work with local leaders to identify the best way to invest in low-income and underserved neighborhoods.
June 9
WASHINGTON Federal Reserve Board Chair Janet Yellen said Wednesday that the agency is examining ways to improve its implementation of the Community Reinvestment Act amid concerns that regulators are letting too many poor communities go unserved by banks.
Speaking at a press conference following the Federal Open Market Committee's two-day meeting, Yellen said that the central bank takes CRA compliance "very seriously" and added that regulators frequently meet with community organizers to seek out ways to meet their financial needs. But she added that the Fed is examining whether the rules implementing the law need to be improved.
"We take CRA very seriously and for those banks that we supervise, we have a set of guidelines and are very conscientious in attempting to evaluate CRA performance," Yellen said. "But we are looking at CRA and will continue to look to see whether there are ways in which implementation can be improved."
Yellen's comments come as riots in Baltimore in April and a tense standoff between the city of Ferguson, Mo., and its police department last fall has drawn greater attention to the structural causes of poverty in inner city and minority communities.
Lawmakers and community advocacy groups are pushing for the Fed and other regulators to overhaul the way they implement the CRA in order to incentivize greater investment in those communities and greater access to traditional banking services. Critics say the law has devolved into a rote compliance exercise that few banks fail and that lets poor and underserved communities fall through the cracks, while banks themselves say they are making meaningful contributions through the CRA and other means.
Sen. Elizabeth Warren, D-Mass., and Rep. Elijah Cummings, D-Md., sent a letter to the Government Accountability Office May 11 asking the agency to examine ways to use the CRA to "responsibly increase access to basic banking services."
Yellen also dismissed provisions in a recently introduced bill from Senate Banking Committee Chairman Richard Shelby, R-Ala. Yellen, who has criticized "audit the Fed" bills in the past, said that the bill's language to allow the GAO to examine the FOMC and other measures are redundant and unnecessary because the FOMC's interest rate-setting process is already highly transparent.
"I suppose I would ask, 'What exactly is the problem?' " Yellen said. "It is our priority on being an accountable and transparent central bank, and I think if you compare the transparency of monetary policy decisions in the Federal Reserve with other central banks, we are one of the most transparent central banks in terms of the information that we provide to the public in a variety of different ways."
Yellen also spoke broadly about the state of the U.S. economy, suggesting that she believes that sluggish growth in the early part of 2015 is "cyclical" and that she believes that wage growth in particular is poised to more closely match the relatively low unemployment rate of recent months.
She also said that the recent rebound in home sales has presented a double-edged sword to the economy, restoring wealth to many households that already own homes but pushing homeownership further out of reach for families looking to buy. But Yellen said that, even though housing is relatively affordable for qualified buyers, limited credit availability and dimmer economic prospects for young people are troubling long-term trends in the market.
"I think credit availability remains quite constrained," Yellen said. "And I think we are seeing quite a bit of reluctance given the job market for young people to buy homes."
During the FOMC meeting, the committee voted Wednesday to continue its years-long near-zero interest rate level, citing moderate improvement in economic fundamentals but persistent slack in the labor market and low inflation. Yellen said in a prepared statement that the rate may remain low for some time even after labor and inflation bounce back.
"The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target funds rate below levels the committee views as normal in the longer run," Yellen said.
The committee revised its 2015 economic projections substantially, estimating the U.S. would experience only between 1.8% and 2% growth this year rather than 2.3%-2.7% after its March meeting. The committee seemed to think that the long-term prognosis remains relatively unchanged, with 2016 and 2017 growth estimates remaining relatively unchanged.
Projections for unemployment also rose slightly from March, with the committee estimating joblessness to remain stable at 5.2-5.3% this year, down from 5.0-5.2%. Longer-run estimates remained essentially unchanged, though a larger number of FOMC members thought that unemployment might creep up in the long run than in earlier meetings.
As in earlier meetings, 15 of the 17 committee members said they favor a rise in the federal funds rate sometime this year. But members' projections for how high the rate should rise this year has dropped from six months ago, when nine members estimated a rate of between 1% and 2% in 2015. All seventeen committee members said the rate would be below 1% after the June 17 meeting, though most members continued to favor a long-term target rate of between 3% and 4%.
