(Updated November 28, 2022)
American banking has a dark history of discrimination against Blacks, immigrants and other minorities. The Community Reinvestment Act (CRA) was passed in 1977 to end that discrimination, known as redlining. But discrimination is still a problem in lending across the nation.
Banks earn profits by investing the money deposited in them by individuals, businesses and governments. Historically, most of those profits came from interest paid on mortgage and small business loans. CRA requires banks to meet the credit needs of the communities where they take deposits, including low- and moderate-income (LMI) neighborhoods. The law requires banks to reinvest deposits back into their communities in ways that are responsive to the community’s needs.
Government agencies that regulate banks periodically review bank compliance with CRA rules. In recent years, nearly all banks have earned passing grades from the government. That’s not new to the Trump Administration. Nearly all banks passed under President Obama too.
In rare cases, when banks fail their CRA exams, regulators may stop the banks from growing or entering new markets until they address their CRA problems.
Regulators also look closely at CRA performance when banks want to buy or merge with another bank.
Community benefits agreements (CBAs) are a way for banks to spell out, in writing, how they will satisfy CRA requirements when they merge. The agreements are between banks and community groups.
CBAs open doors for LMI communities and communities of color, and they increase lending, investments and philanthropy for underserved borrowers and neighborhoods compared to prior practices. CBAs boost financial support for small businesses and a variety of other community development initiatives.
Since 2016, the National Community Reinvestment Coalition (NCRC) has facilitated the creation of CBAs with 21 bank groups worth a combined $589 billion for mortgage, small business and community development lending, investments and philanthropy in LMI and under-resourced communities. The largest-to-date plan, finalized in May 2022, was a five-year, $100 billion plan with U.S. Bank, one of the largest banks in the country. U.S. Bank will develop a mortgage Special Purpose Credit Program (SPCP) and make $100 million in mortgage loans and down payment assistance through the SPCP. It dedicated at least $47 billion in lending to small businesses in communities that are majority people of color and/or experiencing LMI, and $31 billion in community and economic development, affordable housing, and environmental and social impact lending and investments, with a focus on racial equity and access to credit for organizations and developers of color.
When it brings banking and community group leaders together to negotiate a CBA, NCRC plays the role of facilitator and negotiator on behalf of community groups that are members of NCRC. Our first step is to analyze local lending and community development data and review it with NCRC member organizations to identify gaps in services and how a bank merger would affect LMI constituents. We also compare community development loans and investments (CDLI) to banks of a similar size. Due to relaxed enforcement of CRA rules, many banking institutions have fallen behind in reaching the appropriate CDLI level.
NCRC also looks at the Herfindahl-Hirschman Index (HHI), which measures how concentrated a banking market is. Federal regulators use it to evaluate whether a merger will create anti-competitive effects. This information is important in ensuring that merger agreements contain a forward-thinking commitment to the community.
With data in hand, NCRC seeks commitments from the banks to participate in a series of local market meetings, where NCRC members discuss their experiences and views on their community needs and propose improvements to the bank’s community reinvestment plans.
CBAs depend on collaboration between banks and community organizations. That starts with dialog and negotiation on the scope and scale of a bank’s CBA commitment, and it continues after an agreement is signed through community councils set up to advise on the implementation and monitoring of the agreement.
Completed CBAs are:
- KeyBank in March 2016 for $16.5 billion.
- Huntington Bancshares in May 2016 for $16.1 billion.
- Fifth Third Bank in November 2016 for $30 billion.
- First Financial Bank in October 2017 for $1.7 billion.
- Santander Bank in November 2017 for $11 billion.
- IBERIABANK in November 2017 for $6.7 billion.
- First Tennessee Bank in April 2018 for $4 billion.
- Wells Fargo & Company (DC) in October 2018 for $1.6 billion
- Fifth Third updated agreement in October 2018 for an additional $2 billion.
- Cadence Bank in June 2019 for $2.5 billion
- Truist in July 2019 for $60 billion.
- CIT Group in November 2019 for $7.75 billion.
- First Merchants Bank in June 2020 for $1.4 billion.
- (Expanded in November 2022 to $1.97 billion.)
- Morgan Stanley in September 2020 for $15 billion.
- Huntington Bancshares in September 2020 for $20 billion.
- First Citizens Bank in February 2021 for $16 billion.
- PNC Bank in April 2021 for $88 billion.
- Huntington Bancshares in June 2021 for $40.7 billion.
- M&T Bank in October 2021 for $43 billion.
- New York Community Bancorp in January 2022 for $28 billion.
- Old National Bancorp in February 2022 for $8.3 billion.
- Cadence Bank in February 2022 for $20.7 billion.
- U.S. Bank in May 2022 for more than $100 billion.
- Umpqua Bank in May 2022 for $8.1 billion.
- BMO Harris Bank in November 2022 for more than $40 billion.
Alexandria Robinson was a 2019 summer intern at NCRC.