Next City, July 13, 2021, How to Evaluate a Bank’s Community Reinvestment Act Evaluation
There’s a little-known story about the former U.S. Senator William Proxmire who once got into a squabble with federal banking regulators while he was chair of the Senate Banking Committee, in the mid-1970s.
Proxmire wrote to the regulators insisting they already had the authority under existing banking laws to require banks to lend wherever they took deposits, instead of just taking deposits from some neighborhoods while never lending in those neighborhoods. Back then, as now, banks often took deposits from Black neighborhoods while denying loans to residents and businesses in those neighborhoods.
Senator Proxmire believed that since a banking charter is actually a license to create money in the name of the U.S. government, banks had a special obligation to use that license for public good. Banks create money whenever they make investments or make loans. Funds show up instantly in borrowers’ deposit accounts, which then get exchanged between accounts at that bank or between accounts at different banks. Most money in circulation today and for many decades has been simply accounting entries in bank records, not actual hard currency — economists sometimes call it “checkbook money.”