Fintech to Disrupt Carter Era Law

The Federal Reserve’s St. Louis branch held a “Fed Listens” this past week and the topic was Financial Technology ; “Fed Listens” are a series of events which each of the Federal Reserve branches hold throughout the year with stakeholders in their regions.

This “Fed Listens”, held on September 4, 2019, was the ninth of 2019 with the tenth scheduled for September 26 at the San Francisco branch.

Jimmy Carter

This event was hosted by James Bullard, the President and CEO of the St. Louis Fed, and Michelle Bowman, a Fed Governor.

The event had speakers from six stakeholder groups:

Timothy Lampkin is the CEO of the Higher Purpose Company and he spoke on behalf of the Community Development Advisory Council.

During his presentation, Lampkin spoke about the Community Reinvestment Act (CRA).

Michelle Bowman
Michelle Bowman

The CRA is, “a federal law enacted in 1977 with the intent of encouraging depository institutions to help meet the credit needs of low- and moderate-income neighborhoods. The CRA requires federal regulators to assess how well each bank or thrift fulfills its obligations to these communities. This score is used in evaluating applications for future approval of bank mergers, charters, acquisitions, branch openings, and deposit facilities,” according to Investopedia.

Lampkin noted, “the CRA has been really helpful for us- our organization- doing the work that we do, particularly around small business development and supporting entrepreneurs on the ground. I think there is a huge disconnect between what CRA could be used for and the folks that actually can benefit of CRA, and so there a lot of financial institutions are not aware of the flexibility they can utilize to make sure they’re making investments into their backyard.”

Bullard noted in a question to Lampkin that financial technology is likely to be a disruptive force to the CRA.

James Bullard

“CRA is a place based idea about availability of credit and availability of banking services and credit union services, but you’ve got world where- this virtual world- where a lot of the lending is transferring to online systems and that seems to be a little bit at cross purposes with the way CRA was originally conceived.”

When Bullard’s thought was put to the audience, an unidentified banker said in his view, “CRA is going to change drastically over the next twenty years. If you take- for example- rural banks, people are migrating greatly to on-line banking. If you talk to eighteen, nineteen, twenty year olds, how many of them actually set foot into a bank, very few of them. If you look at the underserved communities, for example the historically black owned banks, I believe thirty four percent- the number of black owned banks has been reduced by thirty four percent since the recession- and the asset bases are much smaller, and they’re not growing. There’s leadership issues; there’s asset creation issues. So, if just take those two examples and the fact that younger people are not going into banks. So, you can be in Sullivan, Missouri and you are banking with some group out of Maryland. The nature of CRA is going to have to drastically change in order to address the needs of those in those communities.”

The St. Louis Fed’s website noted of Fed Listens, “In 2019, the Federal Reserve initiated a yearlong effort to assess its monetary policy strategy, tools and communication practices. This includes gathering input from diverse stakeholders and constituents at “Fed Listens” events being held in all 12 Reserve Bank districts.”