ADVANCE COPY

FOR RELEASE November 18, 1996

13

Dwight B. Crane and Zvi Bodie, “The Transformation of Banking: Form Follows Function," Harvard Business Review, March-April 1996, 110.

16

James Grant introduces the idea of "socializing risk” in his book Money of the Mind to describe how more and more debt has become federally subsidized. With federal backing, lending costs are shifted as the public sector's credit effectively supplants that of the private sector (James Grant, Money of the Mind, New York: The Noonday Press, 1992, 5).

"Tom Schlesinger, "Reinvestment Reform in an Era of Financial Change," Southern Finance Project, 1995,

17.

18

19

20

Ibid, Table 27.

Ibid, 2.

John H. Boyd and Mark Gertler, "Are Banks Dead? Or Are the Reports Greatly Exaggerated?” Federal Reserve Bank of Minneapolis, Quarterly Review, Summer 1994.

21

Jackie Calmes, "Federal Mortgage Firm Is Facing New Assault to Privileged Status," The Wall Street Journal, 14 May 1996, A1.

22

Finance companies are prevalent lenders in low-income neighborhoods but their loans are rarely affordable because of the extremely high interest rates they charge.

3/20/97

Response by Allen J. Fishbein, General Counsel, Center for Community Change, to Questions submitted by Rep. Vento from the 2/25/97 hearing on H.R. 268 and Financial Services Modernization

Question 1. You suggest that the time has come for CRA reviews to be extended along product lines. What other products besides mortgage lending would you suggest? Should banking regulators be responsible for CRA review of affiliates or should each entities' lead regulator have a similar law to follow?

In my written testimony before the Subcommittee, I indicated that more and more large financial conglomerates are using their various bank and non-bank affiliates to sell and otherwise cross market what are essentially the same loan products. In addition to mortgages, consumer and small business loans can be made either through banks or non-bank affiliates of BHCs, or more typically, through both types of entities. About one-third (209) of the 631 BHCs have consumer finance affiliates and 162 own mortgage banking companies, according to data compiled by the Office of the Comptroller of the Currency. Many BHCs also own small business investment and lending affiliates. The lending activity of these non-bank affiliates should be covered by CRAtype considerations.

At the same time, other non-bank like activities are conducted by non-bank affiliates, such as Section 20 underwriting affiliates. We recommend that these affiliates be covered by some community reinvestment obligations that are similar, although not exactly the same as CRA. For example, these companies could be required to help to capitalize a community reinvestment funding mechanism. The Federal Home Loan Bank System or another public or quasi-public entity could be designated as the agent for administering the investment of these targeted funds.

The lending records of non-bank affiliates selling bank-like products should be encompassed as part of the CRA review that federal banking supervisory agencies conduct for the insured depository institutions of these holding companies. The records of these non-bank affiliates could then be factored into the overall CRA rating and evaluation that the bank affiliates of the BHC receive. Thus, no new federal regulatory entity would be needed for this type of extension of CRA.

2. Could the new performance based CRA regulations be easier to transpose onto other affiliates than the old regulations? What about just creating strategic plans for affiliates and rating them on their performance under those plans.

Yes, the new performance based CRA regulations lend themselves to calculating investments as well as lending activity. Under the new rules, large banks (more than $250 million in assets) are evaluated based on the level of their lending and investment activities. Investment activities need not be confined to a bank's local assessment area, but may encompass state-level and even

Strategic plan approach might be an option, but there is very limited experience with the usefulness of this approach, even as they apply to banks covered by CRA under the new rules. Accordingly, we urge that other regulatory options not be foreclosed.

Introduction

Good morning Chairwomen Roukema and distinguished members of the House Subcommittee on Financial Institutions and Consumer Credit. My name is John Taylor, and I am the President and CEO of the National Community Reinvestment Coalition or NCRC. NCRC is the nation's largest CRA trade association composed of 600 community-based organizations from inner city neighborhoods and many rural areas. NCRC's philosophy promotes pro-active partnerships among banks and low-income and minority communities dedicated to increasing access to capital and credit. As a trade association of neighborhood organizations, NCRC represents the community's perspective in numerous legislative and regulatory settings. For example, I have been privileged to serve on the Consumer Advisory Council of the Federal Reserve Board and Fannie Mae's Housing Impact Advisory Council. I request that my written testimony be included as part of the official record in the Congressional Record.

NCRC thanks you for the opportunity to testify before you today on a subject, bank modernization, that carries profound impacts on access to capital and credit for this nation's underserved communities. Access to banking products and services is fundamental. With access, our communities thrive and create wealth through expanded homeownership opportunities and small business creation. Without access to capital and credit, our neighborhoods die. The contrast is that simple and stark among communities with bank branches and those lacking them. And the contrast will become even more apparent because of federal budget cuts to housing and economic development programs. Private capital is the only true hope for revitalizing our needy urban and rural areas. That's why NCRC has strongly endorsed and promoted bipartisan initiatives such as Empowerment Zones and the Community Development Financial Institutions Loan Fund that leverage private capital for comprehensive neighborhood development.