Atlanta Fed president urges new rules for banking in minority communities
By David Pendered
Atlanta Fed President Raphael Bostic pointed to a few Atlanta neighborhoods to explain why the Federal Reserve intends to revise the law that governs banking in many minority and lower-income communities.
“We must create incentives for capital to go where it adds the most value, especially in communities that are sorely in need of significant investments like Thomasville Heights, South West Atlanta and others,” Bostic wrote in an email.
Bostic is emphatic in his call for the nation’s central bank to overhaul the Community Reinvestment Act. Congress passed the CRA in 1977, giving the Fed a role in ensuring that banks and other depositories provide an adequate supply of credit in all communities, regardless of income. Passage came nine years after the Fair Housing Act of 1968 was passed to halt racial discrimination in the sale and rental of housing.
Bostic elaborated on his perspective:
- “The banking industry has changed dramatically in the 40 years since the CRA was enacted. Reform is essential to make sure we continue to support its core purpose of meeting the needs of low- to moderate-income communities and addressing inequities in financial services and access to credit throughout the Sixth District and around the country.”
- “To ensure its continued effectiveness, the CRA regulations must evolve. Building on ideas advanced by stakeholders, the Board seeks comment on an approach to modernize the CRA by strengthening, clarifying, and tailoring the CRA regulations to reflect the current banking landscape and better meet the core purpose of the CRA. It has been 25 years since the last significant revision to the CRA regulation, so it is important to take the time to get reform right and ensure broad support.”
The review intends to capture the evolution of virtual banks, depositories that don’t have a physical location. In Atlanta, a new example of a virtual bank is Greenwood, the institution announced last week by three Black icons – Andrew Young, Michael “Killer Mike” Render, and Bounce founder Ryan Glover.
This institution and others, which function on emerging digital platforms, use the type of technology that Bostic mentioned, and which Federal Reserve Board Governor Lael Brainard identified in her Oct. 1 speech during the fall meeting of the Independent Community Bankers of America. Brainard has been named in multiple reports as a potential Treasury secretary in a possible Biden administration. She said:
- “We know that banking has evolved over the past 25 years, so we also sought to update standards in light of changes to banking over time, including mobile and internet banking….
- “In closing, we look forward to modernizing the CRA in a way that strengthens the regulations to advance the core purposes of the statute, while providing greater certainty, tailoring regulations, and minimizing burden.”
Bostic provides the perspective of the nation’s first Black Fed president/CEO. In the aftermath of demonstrations over the death of George Floyd, who died while in custody of Minneapolis police, Bostic has identified avenues for the nation’s central bank to deliver greater responses to the financial stress of the pandemic and structural racism in the nation’s financial system. Congress and the executive branch have a major role to fulfill, but they can’t solve all the problems, he has said.
Most recently, Bostic observed Oct. 7 in a roundtable discussion hosted by the Federal Reserve Bank of Minneapolis, Racism and the Economy:
- “It’s important for us to not give up on the legislative and executive branches….”
In addition, the Fed has a clear role to perform, Bostic said:
- “We actually have some knowledge about what’s happening. We have experts and networks of our own that can help local governments and communities move forward. … Certainly the federal government and its contribution is super important in this. But we can’t stand by and wait and hope. There are other things we have to do.”
Bostic has been at the forefront of calling for the central bank to take on a greater role in responding to the growing call for financial equity. Bostic published an essay June 12 that was outlined some positions later supported by Fed Chairman Jerome Powell. Bostic’s piece commanded greater attention in the business media than the years-long efforts by Minneapolis Fed President Neel Kashkari to address systemic financial areas in the district. Bostic wrote in the paper, A Moral and Economic Imperative to End Racism:
- “By limiting economic and educational opportunities for a large number of Americans, institutionalized racism constrains this country’s economic potential….
- “This country has both a moral and economic imperative to end these unjust and destructive practices….
The transition from moral imperative to economic imperative observes:
- “A commitment to an inclusive society also means a commitment to an inclusive economy. Such an economy would represent a rebuke of systemic racism and other exclusionary structures. It would represent a true embrace of the principles that all are created equal and should enjoy unburdened life, liberty, and the pursuit of happiness.”
One path toward achieving such an inclusive society is the revision of the Community Reinvestment Act in order to increase equitable access to financial means. As Bostic concluded his thoughts in the email, about pending revisions of the Community Reinvestment Act, he wrote:
- “Importantly, the proposed changes also make the rules clearer, more transparent, and less subjective.”