American Banker, July 2, 2019: CRA credit for fighting climate change: One Fed bank’s suggestion
As policymakers mull changes to the 42-year-old Community Reinvestment Act, economists at the San Francisco Fed have put forth this novel proposal: Give banks CRA credit for helping low-income communities protect themselves, or rebuild, from severe weather events related to climate change.
Natural disasters often hit low- and moderate-income communities the hardest because they have fewer resources to prepare for and recover from those types of events. The researchers said in a recent paper that banks should be able to earn CRA credit by financing developments that help those communities withstand disasters such as hurricanes and severe floods.
So far, much of the discussion around modernizing CRA has been focused on what counts as an assessment area when there are digital banks that have just one office but take deposits from and make loans to customers nationwide. Banks have also been pushing for establish a uniform grading system so there won’t be any confusion over what does and does not count as CRA credit.
Jesse Van Tol, CEO of the National Community Reinvestment Coalition, said he shares the concern that expanding CRA too much will dilute it, but he disagrees that CRA should be focused only on affordable housing. He said the law was intended to promote community development in low- and moderate-income areas more broadly.
Van Tol also said he supports the San Francisco’s Fed proposal — with an important caveat.
“I think keeping it focused on low- and moderate-income communities in the context of climate change, not giving credit for just any investments, but really keeping it focused on low-income areas would be important,” he said.