I firmly believe that all successful businesses should give back to their communities. Giving back helps the community and, in the long run, also benefits the business.
Giving back can take many forms, from supporting arts, cultural and other nonprofit organizations, to encouraging employees to engage in service projects, to supporting first-responders and to supporting programs for low-income and disadvantaged communities.
In the banking industry, we are required by a federal law called the Community Reinvestment Act, or CRA, enacted in 1977, to serve low- and moderate-income citizens and families through loans, investments and other programs. While many banks go far beyond the requirements of the act in giving back to their communities, it has been instrumental in seeing that the banking industry supports important community initiatives and doesn’t overlook disadvantaged segments of the population.
The Community Reinvestment Act has been partly responsible for the remarkable community involvement and service provided by the Utah banking industry. The Utah Bankers Association reports that Utah banks invested more than $5 billion in the low- to moderate-income communities they serve, according to a survey conducted three years ago. Utah banks made more than $50 million in donations to charitable and nonprofit organizations, and bank employees provided more than 400,000 hours of community service.
Those numbers include data from banks headquartered in Utah that could have provided CRA work in other states. But the overall amount of investment is likely understated because not all Utah banks participated in the survey and the data is three years old.
The Utah banking industry serves more than 3 million customers, employs more than 18,000 people and annually provides more than $1.3 billion in compensation. Among many lines of business, banks provide more than $6.2 billion in home loans.
I am highly supportive of the mission of the Community Reinvestment Act. It has made a difference in the lives of millions of people in Utah and across the nation.
But since its creation more than 40 years ago, society has changed dramatically and the law needs some revisions to stay relevant and to serve more people in today’s world.
The effort to modernize the Community Reinvestiment Act is being led by Joseph Otting, who leads the Office of Comptroller of the Currency, or OCC. He notes that over the past four decades, regulations implementing the law have become “cumbersome, complex and outdated.” Otting also said that bank performance evaluations by regulators “take too long, lack transparency and suffer from subjectivity that causes inconsistency from bank to bank.” The OCC is seeking comment from all stakeholders to modernize the law.
Banks face regular examinations by federal regulators to measure their Community Reinvestment Act performance, and a bank that is not achieving those standards can be penalized in a variety of ways. By updating their provisions for the act, banks can provide better service while still meeting the standards and objectives.
Today’s Community Reinvestment Act rules sometimes make it hard for bankers to serve their communities. For example, banks focus a great deal on supporting low-income housing under current regulations. Certainly, housing supply is a critical challenge worthy of investment, especially in Utah’s booming Wasatch Front.
However, in some rural areas, housing may not be a big problem, and a much greater need for bank investment may be found in job creation, health care, education and infrastructure. Banks need the flexibility to help support community needs, whatever they are. Circumstances can differ greatly from community to community.
The American Bankers Association recommends that CRA be reformed to align resources with actual community needs, promote economic growth, simplify compliance requirements and improve the transparency of the supervisory process.
The American Bankers Association also suggests that requirements be extended to other bank-like financial institutions (such as credit unions) that compete directly with banks but that aren’t required to serve their communities.
The Office of Comptroller of the Currency’s efforts to update the Community Reinvestment Act are both timely and necessary. This important law needs to be brought into the modern era so banks can better serve their communities.