Community Reinvestment Act generates estimated $5.88 billion annual investment in Texas communities, says Dallas Fed

For Immediate Release: December 11, 2017

DALLAS—An estimated $5.88 billion flows into Texas communities each year as a result of the Community Reinvestment Act (CRA), according to a new report from the Federal Reserve Bank of Dallas.

For the first time, “The CRA at 40: Law Remains a Cornerstone of Community Development,” provides a quantitative and qualitative assessment of the CRA’s impact on Texas communities.

“We used an established methodology for measuring bank reinvestment in dollars, but the CRA’s impact is more than just raw dollars—it’s about the stories of bank investment in underserved communities,” said report author Emily Ryder Perlmeter, community development analyst.

“The CRA has not been a static piece of legislation. It has evolved over time, adapting to an increasingly complex world. Our analysis also captures the sentiment of the bankers who work directly with this regulation, helping us comprehend both the opportunities and challenges they face when providing loans, investments and services to low- and moderate-income communities.”

Prior to the CRA, access to credit was often unavailable for residents of low- and moderate-income (LMI) communities, writes Perlmeter. Congress enacted the CRA in 1977 to combat this discrimination and help ensure fairness in lending. To enforce this law, regulators examine banks on an ongoing basis.

Over the course of its history, Perlmeter writes, the CRA has faced its share of criticism, and even some supporters have questioned its contributions in a modern era and whether some of its regulations are burdensome.

In light of these questions, the Dallas Fed launched a study into the community impact of the CRA in 2017. Focused exclusively on Texas, the report takes a quantitative look at the CRA’s financial impact by analyzing the performance evaluations that regulating agencies are required to make public. The report also provides a qualitative analysis of its successes and challenges from the perspective of bankers. Among the key findings:

• Large banks provide about $5.88 billion in CRA loans or investments to LMI communities in Texas each year.
• While most respondents to the CRA Banker Poll indicated that senior management has a good basic understanding of LMI needs, about 20 percent said there is “a little work to do” to get bank management more informed about the needs in their communities.
• Responding to a series of questions relating to regulatory burden, the majority (54 percent) of respondents described the lending requirements of the CRA as somewhat or very difficult for them to meet.
• Among qualifying loan types, most respondents felt that CRA-eligible loans for affordable housing were the most difficult to make, while those for revitalization or stabilization were the easiest.
• Over 30 percent of respondents felt that lack of opportunity in their region was the greatest barrier to CRA activity.

The report also debunks come common myths about the CRA. For example, critics have charged that the act incentivized banks to make the high-risk loans that caused the 2007 housing crisis. Evidence, however, suggests this is inaccurate. The report also highlights some CRA success stories and recommendations for further study to ensure its responsiveness to all communities.

“The CRA has been a significant and effective tool for ensuring financial investment in many otherwise underserved communities,” Perlmeter writes. “For bankers, getting support and buy-in from all levels of leadership will continue to be advantageous to meeting goals.”

The report is part of the Dallas Fed’s Community Outlook Series, which features analysis on a rotating set of topics affecting low- and moderate-income families across Texas and the organizations that serve them.

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
E-mail: jennifer.chamberlain@dal.frb.org