This post could also be entitled, “How to solve a regulatory problem and make more money”. In the 1980s through mid 1990 there was an effort at big banks to comply with the spirit if the Community Reinvestment Act. It was talked about. Data was produced and distributed to field personnel. There were goals to make loans in low to moderate income census tracts. Loans make by real people, familiar with the market, with real customization in an effort to meet the spirit of the regulation. There were plenty of people responsible for CRA compliance. Then someone came up with a solution. It was just too hard to try to make these loans locally. We needed a factory approach to get the volumes up. It also happened that credit card micro marketing by zip code came into vogue. Computers could tell us what to do. Sub Prime loans were perfect. We could pump the credit into these areas and dump the risk into securitization pools.
The data stopped flowing to the local market. No one was asked to try to make loans in these areas. CRA officer positions disappeared. The very term “CRA” was never even mentioned again. I have not heard the term CRA mentioned in ten years.
Someone should do a study. Is there any regulator out there that reads this blog? Is there anyone else that can shed light on what happened? I was not in the room, so I can only presume. Some report high in the organization was produced for the regulators and it showed that we not only met, we greatly exceeded our CRA goals. We were supporting this community, from which we draw deposits and fee income. Big fee income. Acquisitions would not be held up by community groups because the data was on our side. Massive lending into the LMI community. Problem solved.
How will we solve the new regulation problem and make money?