Have you ever heard of the Community Reinvestment Act (CRA)? The law was established in 1977 and mandates that banks have a “continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.” This effectively means that banks, when applying for a new branch, must show the local community how they plan to help citizens from a financial and investment stand point. The law was expanded during the Obama Administration after the “National Community Reinvestment Coalition (NCRC) and its members negotiated $62.6 billion in community reinvestment agreements with banks.” The reinvestment legislation is now helping Boston, MA, Lafayett, LA, and Cincinnati, OH receive billions in banking commitment over the new few years.
To begin, Santander Bank, a Boston-based subsidiary of Spain’s Banco Santander recently announced an $11 billion commitment over the next 5 years. Santander previously failed its examination leading to a new commitment which promises a partnership with more than 100 community based organizations. Santander’s deal includes:
- $9.1 billion in lending to underserved communities across its 10-state footprint in the Northeast, of which
- $4.2 billion will go to home mortgages for low- to moderate-income families,
- $1.9 billion is promised to small business lending, and
- $3 billion in community development lending.
- The bank also promised an additional $1.9 billion in community development investments,
- $55 million in charitable contributions to 10 new branches in low- to moderate-income communities and communities of color, and
- 60,000 community development volunteer hours.
“Iberiabank, based in Lafayette, Louisiana, announced a $6.72 billion five-year commitment covering eight Southeastern states.” There commitment includes the following:
- $2 billion in promised mortgage lending for low- to moderate-income families and families of color,
- $3.2 billion in small business lending,
- $1.5 billion in community development financing including hurricane recovery, and
- $20 million in grants and philanthropy.
- The bank also promises two new branches, one each in a low- to moderate-income community of Atlanta and Miami-Dade.
First Financial Bank, a regional bank based in Cincinnati (and one that we’ve covered before), committed to reinvest $1.75 billion in the Ohio, Kentucky, and Indiana cities of Cincinnati, Columbus, Dayton, Indianapolis, Gary and Louisville. The reinvestment dollars include:
- $510 million in home mortgage lending for low- to moderate-income families,
- $750 million in small business lending,
- $450 million in community development financing, and
- $8.5 million in grants and philanthropy to support unbanked or underbanked individuals.
Lastly, a good way to view the Reinvestment Act is to see how much each bank is investing in comparison to their assets. The breakdown is as follows:
- Santander has $79 billion in assets, so its agreement covers 14 percent of those assets;
- Iberiabank has $27 billion in assets, so its agreement covers 25 percent;
- First Financial has around $13.4 billion in assets after its recent merger, so its agreement covers around 13 percent of its assets.
As you can see a mix of between 10% to 25% for the current new banks is a good requirement going forward. Now the question becomes how organizations can ensure these dollars are received by the community. I am currently not sure how it is tracked, but if done correctly the 1977 law can mean a great deal for these cities.