To rebuild the economy and bring hope back to tens of millions of Americans we need the big banks to do their part to fix what they broke. This is the focus of Round Two in our fight to keep the banks honest.
The starting bell for round 2 sounds today in Arlington, Va. as the first of four bank accountability hearings will be held by the nation's federal banking regulators.
As the recession lingers, the numbers -- 11 million jobs gone, 3 million homes foreclosed on, billions in pensions lost, tens of thousands of vacant bank-owned properties -- are so staggering that we can become numb to them. But in cities and towns across the country these numbers are all too real, representing fellow Americans struggling to find a job, save their home, or retire with dignity.
That's the mess. Here's how we clean it up.
In the lead-up to the foreclosure crisis, only 6 percent of the high-cost subprime loans were made by lenders covered by our community reinvestment laws. This means 94 percent of the high-cost subprime loans were made outside the law of the Community Reinvestment Act. The law works because banks get community reinvestment credit not just for making loans but for making good loans that meet the credit needs of the communities they serve and profit from.
Unfortunately, over the last decade the big banks moved much of their lending outside the law. In an effort to skirt community reinvestment laws, banks began doing their most questionable lending through subsidiaries not subject to the high standards included of the Community Reinvestment Act.
Moving forward we need more lending activities to be covered by our community reinvestment laws. Here are three ways our community reinvestment regulations need to be modernized to keep the banks honest and get good credit moving in America's cities and towns:
- Lending by Subsidiaries Must be Included in Bank Exams: Currently the big banks have the choice as to whether the lending of their subsidiaries is reviewed as part of the community reinvestment exam. So, if the lending of a subsidiary mortgage operation would help their score, they include it. If it would hurt their score, they don't include it. This is one of the only places in American life where you can choose which classes you are graded on. Because we have seen that community reinvestment regulated lenders perform quite well, we should make sure all bank lending activities are included in bank exams.
The banks created a crisis of incredible proportions. Last week Congress finally passed a bill focused on preventing another one. Now we need the banking regulators to step up and make sure the banks do their part to clean up the mess that they created. A modernized Community Reinvestment Act will be a critical step.
You can help make sure this happens by attending one of the hearings or by sending comment to the banking regulators pushing for bank affiliates and subsidiaries to be covered by the law, a real system for grading that makes sure banks are advancing the common good, and rewarding banks that invest in community-controlled economic development.