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Senate Approves Anti-CRA Bill

By Eugene T. Lowe

On March 4, the Senate Banking Committee approved a bill, the Financial Services Modernization Act of 1999, that will seriously weaken the Community Reinvestment Act (CRA). The bill attacks CRA in three ways: eliminates requirement for engaging in expanded powers; provides safe harbor of institutions with a "satisfactory" or better CRA rating; and exempts small banks.

In last year’s version of financial services modernization, H.R.10, the Senate Banking Committee required that banks within a holding company to have and maintain "satisfactory" CRA ratings if they wanted to expend with new affiliates and new financial powers. But the bill as passed by the Senate Banking Committee on March 4 eliminates this requirement. In a letter to Senator Phil Gramm (TX), Chairman of the Senate Banking Committee, Treasury Secretary Robert Rubin said: "If we wish to preserve the relevance of CRA at a time when the relative importance of bank mergers may decline and the establishment of non-bank financial activities will become increasingly important, the authority to engage in newly authorized activities must be connected to a satisfactory CRA performance."

CRA would be further weakened by a provision that would make the bank in compliance with CRA if the institution has received at least a "satisfactory" rating on its most recent examination and all examinations within the last 36 months. With this provision, public comment on CRA performance would be eliminated.

Still another provision would remove sixty-three percent of all banks from CRA by exempting banks with less than $100 million in assets. Rural communities would especially be hurt by this provision.

May 3 or May 10 are the target dates for bringing the legislation to the Senate floor.

In a letter to Senator Paul S. Sarbanes, Ranking Minority Member of the Senate Banking Committee, President Bill Clinton said of the "Financial Services Modernization Act of 1999:" "In its current form, the bill would undermine the effectiveness of the Community Reinvestment Act (CRA), a law that has helped to build homes, create jobs, and restore hope in communities across America." The President closed his letter by saying: "I agree that reform of the laws governing our nation’s financial services industry would promote the public interest. However, I will veto the Financial Services Modernization Act if it is presented to me in its current form."

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