Law Packs Punch For Communities

The Spokane Low-Income Housing Consortium recently surveyed its member agencies and got, in reply, a powerful testimonial for an endangered federal law.

The members added up some $33 million in private-sector investment that has gone into low-income housing here in the past five years, thanks largely to the 1977 Community Reinvestment Act.

That act obliges banks to loan some of their deposits back into their communities, including the low-income and minority sectors that might otherwise be neglected.

This valuable law could be diluted by the time Congress completes a major overhaul of legislation governing financial institutions. The main objective is to get rid of the Depression-era bans on cross-ownership among banks, investment houses and insurance companies.

Such a move is expected to accelerate the pace of mergers and acquisitions that Congress jump-started earlier this decade when it lifted the ban on interstate banking.

In Congress, there is bipartisan consensus that repeal is appropriate. However, it scares advocates of the community strengthening that occurs when low-income residents become stable homeowners and renters and launch small businesses that help them and their families move up the economic ladder.

The fear is this: As mergers occur, the resulting conglomerates will shift their activities and assets out of the banks, which are covered by the Community Reinvestment Act, into financial holdings that aren’t.

Congress can address this concern by extending the act’s provisions to the other institutions involved, thus keeping the community obligations intact, no matter who holds the assets.

Lenders dislike the record-keeping burdens the law forces upon them. Who wouldn’t? But local bankers who see themselves and their institutions as community stakeholders agree that the Community Reinvestment Act serves a worthy purpose.

Indeed it does. Statistics show that where there is affordable housing, there is less crime, families are more stable and children form a stronger attachment to school. Moreover, investment in entrepreneurism is an investment in welfare reform.

Responsible bankers would make many community-oriented loans anyway. But it’s worth noting that the law has produced significant results only since the early 1990s when noncompliance became an impediment to newly allowed interstate acquisitions.

Similarly, if Congress’ work produces the expected proliferation of financial mergers, Spokane and similar communities will need the law’s leverage to help far-off decision-makers appreciate the value of strengthening their depositors’ communities.