For release on delivery
1:30 p.m. EDT
April 17, 2018
Community Development in Baltimore and
A Few Observations on Community Reinvestment Act Modernization
Remarks by
Lael Brainard
Member
Board of Governors of the Federal Reserve System
at the
Federal Reserve Bank of Richmond
Baltimore Community Development Gathering
Baltimore, Maryland
April 17, 2018
Good afternoon everyone. I want to take a moment to thank you for giving us such great
insights into all the important work that is taking place here in the neighborhoods of Baltimore.1
Every few months, I try to get out to some of the areas of the country where our Reserve Banks
are engaged with community members, community development institutions, businesses, banks,
and schools in efforts to create more vibrant communities. I last had the pleasure of visiting
Baltimore with community development staff from the Richmond Federal Reserve Bank in 2015.
Each visit teaches me so much more about the complexity of the challenges you face, the
creativity of the solutions you devise, and ultimately the determination you all demonstrate to lift
up the lives of all community members in this city. Collectively, as community development
professionals, concerned residents, and community partners, I can see the considerable progress
you are making in the neighborhoods of Baltimore, although of course there is still plenty of
work to be done.
We, at the Federal Reserve Board and the Federal Reserve Bank of Richmond, recognize
the unique challenges Baltimore faces, and we are committed to remaining focused on this city
and to partnering where that can be helpful. Baltimore and its residents deserve a more
prosperous and equitable future. I am pleased that the Federal Reserve's Community
Development team has been supporting your work and helping to convene collaborative
endeavors, such as the Symposium on Workforce Transportation that occurred in February, and
cross-state learning exchanges that connect community development leaders from Maryland and
the Carolinas.
Perhaps the work that best exemplifies our commitment to understanding the complex
dynamics of this city is the Federal Reserve Bank of Richmond's Persistent Poverty Study. The
goal of this research initiative is to further understand the barriers and incentives that individuals
living in persistent poverty face in making economic decisions. This multiyear qualitative
research project will interview households in the Baltimore metro area to better understand how
individuals have been able to overcome intergenerational poverty. I will be very interested in
what we will all learn from this work.
I would also like to highlight that the Reinventing our Communities conference will be
held here in Baltimore from October 1st through 3rd. This is an excellent conference that draws
on resources from across the Federal Reserve System, along with Johns Hopkins University, to
highlight effective models and emerging strategies for investing capital to foster economic
growth by enabling every individual to contribute to and derive benefit from the economy.
The Federal Reserve System has a valuable perspective because we are in communities
all across this nation and because as a supervisor we engage with banks as they seek to fulfill
their affirmative obligations to meet the credit needs of their communities. I have seen the value
of the Community Reinvestment Act (CRA) as a vital tool to address the credit needs of low-
and moderate-income communities, and I believe the time is ripe for a refresh to make it even
more relevant to today's challenges. As you may know, the Treasury Department recently
completed an extensive outreach effort related to modernizing the CRA regulations. We look
forward to working with the Office of the Comptroller of the Currency, and the Federal Deposit
Insurance Corporation, with which we have traditionally issued joint rulemakings on CRA.
The Federal Reserve is deeply committed to the Community Reinvestment Act's goal of
encouraging banks to meet their affirmative obligation to serve their entire community, and in
particular the credit needs of low- and moderate-income communities. As we have seen all over
the country, when banks are inclusive in their lending, it helps low- and moderate-income
communities to thrive by providing opportunities for community members to buy and improve
their homes and to start and expand small businesses. We employ an extraordinary group of
CRA examiners and community development professionals to make sure that we do our part to
help banks meet this obligation, as the statute directs. We are very proud of the role we play in
educating banks on the CRA's provisions, introducing them to potential partners in the
community, and keeping them informed of best practices in the field. In fact, one of CRA's
important achievements has been to help foster the growth of the community development field
by building stronger relationships between financial institutions and community and economic
development professionals. This development has expanded the number and range of
opportunities for banks to lend and invest in safe and sound ways, benefiting both banks and
their communities.
The current CRA regulations date back to 1995. In the two decades since, there have
been substantial changes in the ways that banks serve their customers and in the challenges faced
by low- and moderate-income communities. The time is ripe to modernize the CRA regulations
to make them more effective in making credit available in low- and moderate-income areas at a
time when technological and structural changes in the banking industry allow banks to serve
customers outside of the areas with branches that have traditionally defined a bank's community.
As we update the rules, it should be possible to achieve better outcomes--both providing banks
with the greater clarity and predictability they seek while also facilitating better provision of
credit, investments, and banking services in low- and moderate-income areas. There are several
outcomes that we will work toward in the interagency rule-writing effort.
First, we should seek to modernize the definition of assessment areas in such a way that
the core focus remains the credit needs of local communities. The definition in the existing CRA
regulation of a bank's assessment area--that is, the area in which we evaluate a bank's CRA
performance--reflects a banking environment when interstate banking was not yet allowed, and
physical branches were necessary to serve the deposit and lending needs of bank customers.
Technological advances and changing consumer preferences have made it possible for banks to
serve customers far outside of their physical branches--for example, online and on mobile
devices. Clearly, it is time to find a way to expand the area in which the agencies evaluate a
bank's CRA activities. At the same time, it is important to retain a focus on place--and in
particular the credit needs of local communities. We are confident that there are ways to expand
the area where we evaluate a bank's CRA performance without losing the regulation's focus on
the unique role banks play in meeting local credit needs and providing services that are only
possible by using branches. Treasury's recommendation that the agencies revisit the regulations
to allow CRA consideration for a bank's activities in its assessment area, as currently delineated
around branches and deposit-taking automated teller machines, as well as in low- and moderate-
income areas outside that branch footprint, is a reasonable place to start our interagency
discussions.
Second, banks should be encouraged to seek opportunities in areas that are underserved.
Currently, a bank's performance in its major markets is evaluated most closely and weighs most
heavily in its CRA rating. This emphasis has resulted in what banks and community
organizations refer to as credit "hot spots" where there is a high density of banks relative to
investment opportunities. Meanwhile, other areas have a difficult time attracting capital because
they are not in a bank's major market, if they are served by a bank at all. Key priorities in any
new set of regulations are to eliminate such market distortions and to avoid creating new ones.
No matter how we define a bank's assessment area in the future, new regulations need to be
designed and implemented in a way that encourages banks to spread their community investment
activities across the areas they serve.
Third, revised regulations should be tailored, recognizing that banks vary widely in size
and business strategy and serve communities with widely varying needs. Banks seek clearer,
simpler rules that result in more CRA activity with less burden. We believe this can be done
while retaining the flexibility to evaluate a bank's CRA performance in light of its size, business
strategy, capacity, and constraints as well as its community's demographics, economic
conditions, and credit needs and opportunities. We should not adopt a set of evaluation criteria
that would be appropriate for large banks and assume that smaller community banks would be
able to meet them without substantial additional burden. We should also be sensitive to the ways
in which a bank's business strategy, no matter its size, influences the types of activities it
undertakes to meet its CRA obligations. Regulatory revisions that do not contemplate evaluating
CRA performance in context risk undermining CRA's greatest attribute--its recognition that
banks are uniquely situated to be responsive to the most impactful community and economic
development needs in communities.
Fourth, we should seek greater consistency in examinations and ratings across the
agencies as well as within each agency. Clarity about the activities that qualify for CRA
consideration, the area in which those activities will be considered, and the type of demographic
and economic information examiners evaluate will go a long way toward promoting consistency.
In addition to regulatory revisions, however, the agencies can promote consistency in other, non-
regulatory ways. For example, we can improve the way in which examiners present their
analysis in written performance evaluations and provide more opportunities for interagency
examiner training.
Fifth and finally, revised regulations should support CRA's position as one of several
mutually reinforcing laws designed to promote an inclusive financial services industry. As banks
seek to meet the credit needs of their entire community, it is important to ensure against
discriminatory or unfair and deceptive lending practices.
In the months ahead, I look forward to receiving input from the many stakeholders about
the path forward on modernizing CRA regulations. I want to express my commitment to
supporting the goals of CRA as we revise the regulations to better align them with current
banking practices.
In closing, I want to express my appreciation to you for inviting me to join you today. I
am very impressed with the important ways different kinds of organizations represented in this
room are working in partnership to promote economic development here in your community.