If Washington is serious about addressing job creation, the White House and Congress should support the expansion of a 33-year-old law, the Community Reinvestment Act (CRA), legislation that has invested over a trillion dollars into our economy during the past decade.
And, they don't have to spend a dime of taxpayer money.
Under the leadership of House Financial Services Committee Chairman Barney Frank, Representatives Luis Gutierrez, Maxine Waters, Al Green and Eddie Bernice Johnson introduced H.R. 6334, the American Community Investment Reform Act of 2010 (ACIRA), which expands and strengthens the Community Reinvestment Act, by applying it to Wall Street, bank affiliates and other financial services companies. The bill will also close loopholes and gaps in the law, improve enforcement and expand transparency and accountability.
Chairman Frank has said he will make expanding CRA a top priority of the House Financial Services Committee after the November election.
Signed in 1977, CRA requires some banks to address the unmet capital, credit and basic banking services needs of creditworthy individuals and businesses, in towns, cities and rural areas, with a focus on working class communities. It leverages a private sector commitment to lend, invest and provide financial services, so the law doesn't cost taxpayers.
Strengthening CRA's enforcement and accountability provisions to more financial institutions provides another tool in the toolbox to avoid an economic crisis triggered by abusive and predatory lending practices. The Federal Reserve found that CRA-covered banks made significantly fewer risky loans. In fact, non-CRA covered lenders made 94% of the riskiest loans. Also, CRA covered loans are half as likely to end up in foreclosure.
This bill will get our banks lending again. Overall bank lending was down 7.5% from 2008 to 2009, the largest annual decrease since the 1940s. Recent reports show that banks' loan-to-deposit ratios have gone down, while their profits are up.
Without lending, small businesses can't create jobs. A congressional report issued in June said the value of large banks' loans to small businesses shrank nine percent from 2008 to 2009. And in July, the Federal Reserve said only 40% of small businesses that tried to borrow in 2009 had their needs met. Small businesses create two out of every three new jobs.
Meanwhile, neighborhoods have been destabilized. More than eight million homes experienced a foreclosure since 2007, and we face 7-8 million more foreclosures in the next two years nationwide. As a result, most Americans' wealth is shrinking. More than $6 trillion in home equity wealth was eliminated in the last four years. For the first time, banks own a greater share of residential housing net worth than all Americans put together. In light of these statistics and widening wealth gap disparity, a coalition of civil rights, community development, housing and advocacy organizations announced their intention to work together to help move the legislation reforming CRA.
If there ever was a time for Democrats and Republicans to come together and support legislation that puts people back to work, builds neighborhoods and doesn't cost a dime, it is now. This should be a no-brainer.