October 3, 2018 / 6:32 PM / 2 months ago

Changes to U.S. community banking law appropriate: Fed's Mester

FILE PHOTO: Loretta Mester, president of the Federal Reserve Bank of Cleveland, speaks during an interview in Manhattan, New York, U.S., August 15, 2017. REUTERS/Shannon Stapleton

ST. LOUIS (Reuters) - The Community Reinvestment Act has improved home and small business lending in poorer U.S. communities, but should be overhauled to take account of changes in technology and banking practices, Cleveland Federal Reserve President Loretta Mester said on Wednesday.

In remarks to a community banking conference in St. Louis, Mester joined other Fed and U.S. government officials in calling for new ways to determine if banks are meeting requirements to lend to their communities, and to guard against racial bias and other prohibited practices in extending credit.

Mester said several studies of the 1977 federal law indicate it “has provided tangible benefits to low- and moderate-income neighborhoods ... On the margin, bank lending in these areas is higher than it otherwise would be.”

The CRA requires banks to be examined on the basis of their community lending, and disclose geographic and demographic data about home and small business loan applications, approvals, and denials.

The last major review of the law, however, was in the mid-1990s, and banking practices and technology have changed in ways the law should perhaps account for, Mester said.

The notion of a local “assessment area” as limited to neighborhoods around a bank’s physical locations, for example, might make less sense in an era of internet-based loan applications and more extensive interstate branching.

The U.S. Treasury Department and other agencies, including the U.S. central bank, are currently reviewing the CRA for possible changes.

“Banks come in different sizes, serve areas with different needs, and use different business models,” Mester said. The law should be more flexible and tailored “for different kinds of banks ... allowing them to meet their CRA obligations in a way that plays to their strengths while best servicing their communities.”

Reporting by Howard Schneider; Editing by Paul Simao

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