The takeaway: I don’t see what the CRA has done for blacks.
Back in 1992, an acquaintance of mine gave a presentation at a church I attended. The presentation was about the Community Reinvestment Act, a law passed back in 1977 intended to address urban decay and a lack of investment in urban areas of America. Congress believed that Federal Reserve member banks had an obligation to meet the credit needs of low- and middle-income communities.
For over a century, banks either loaned money to black Americans at interest rates in excess of those offered to white Americans with similar employment, credit ratings, or household income. On the other end of the equity spectrum, banks refused to extend credit to blacks living in certain areas using a process called redlining to demark the geographical areas potential black applicants lived in, making these areas financial no-fly zones.
From what I recall of the presentation I was not particularly moved at the time by the subject matter. While the presentation was clear and the civil rights message stood out, I did not see Tallahassee, Florida at the time as being under attack by unfair housing financial practices. By 1992, blacks were living just about anywhere they wanted to. Some black families literally had family compounds in Leon County where land had been handed down through the generations and families held on to their property.
This is not to say that the CRA and prior pieces of federal legislation passed over the decades before the 1977 Act did not have an impact on making homeownership possible and affordable for blacks. However, as an action leading to a political outcome, the CRA left little to be desired.
But what political outcome were blacks hoping to obtain from the passage of the CRA? Participation in the interbank market? Greater influence on the Board of Governors of the Federal Reserve System? An increase in capital entering black communities and financed black businesses?
Living in a black, southwest Atlanta neighborhood for the past fifteen years I cannot say that I have seen any increase in capital flow to my neighborhood such that black-owned businesses are opening or more blacks own homes. Rather, the CRA appears to have made it easier for non-blacks to buy up housing owned by blacks. Gentrification, a buzz word thrown around a lot during the Trump years seems to go unrepeated during the Biden years. Forty-six years after passage of the CRA, blacks still face capital allocation issues, are not significant participants in banking, and appear to own fewer homes, at least in my significant corner of Atlanta.
On the other hand, accessing bank services via mobile phone may be having an impact on the reduction of bank branches. As I may have shared in previous blog posts, JP Morgan Chase vacated the West End a decade ago and Wells Fargo closed a branch in the West End a few years ago as well.
Black politicians concerned about protecting their communities via banking should have been advocating that the Federal Reserve increase rates hard and fast. While the increase in rates would have been accompanied by a decrease in house prices, non-blacks would have thought twice about buying up black neighborhoods while black homeowners using data evincing falling values could have petitioned for lower property taxes based on those falling values.
Higher rates would have put a moat around black-owned homes and in my opinion done a lot better job than the Community Reinvestment Act at protecting the existence of black communities.
29 April 2023
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The stats …
30-day Fed Funds Options: 95.10
Effective federal funds rate: 4.83%
Federal funds target range: 4.75%-5.00%
Discount window: 5.00%
Interest on reserve balances: 4.90%
Two-year Treasury: 4.07%
Ten-year Treasury: 3.53%
Prime bank rate: 8.00%
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