The CRA: Weaker Than Weak

Felix Salmon catches a nice one: National People's Action released a report showing how the nation's top banks have managed to end run the Community Reinvestment Act.

Banks beating a particular regulation is not exactly an earth shattering revelation - but you'll remember that the CRA is the law Wall Street apologists were blaming for causing the financial crisis.

The argument went - the CRA "forced" banks to lend money to poor people, so bad loans got made and the crisis followed.

Which is total crap for all sorts of reasons:

1. the CRA was passed almost a quarter century ago and the subprime bubble didn't swell until after 2000 (and oh-by-the-way the CRA is still in effect, yet banks have somehow managed to stop making subprime loans now that they cannot be securitized for profit).
2. The CRA explicitly (and repeatedly) states that community lending should not be at odds with sound business practices
3. There are no mandatory punitive measures for being out of compliance with the CRA.

National People's Action adds another item to this list:

4. The banks were using subsidiaries to lend to the low income market - so the parent bank's CRA evaluation would be unaffected

Here's Felix

...if you get a mortgage from Citimortgage or Citifinancial rather than from Citibank, you’re not going to get noticed in Citi’s CRA exam. And at Wells Fargo, the list of affiliate mortgage lenders [in NPA's report] goes on for the best part of three pages.

Nice.