Reacting to the recent subprime-mortgage crisis the Federal resrve Chairman, Ben Bernanke, has said that a 30-year-old U.S. law requiring banks to serve their communities` credit needs must evolve. Speaking in a Fed Community Affairs Research Conference in Washington, Fed chief said, ‘regulatory enforcement of the Community Reinvestment Act may need to be rethought in light of the subprime-mortgage crisis’. He also hinted that reviews under the CRA could give more weight to whether a lender provides services such as counseling and financial education.
Bernanke has questioned a decades-old law, called the Community Reinvestment Act, which aims to make sure that banks serve all their customers, including those in low and moderate-income communities. He further warned that troubles plaguing lenders and borrowers with risky mortgages may challenge the notion that widespread access to credit is always a good thing.
It was also argued that the law, enacted in 1977, has produced some benefits, including helping to bolster home ownership rates among the poor, but the results are not uniform. ‘Recent problems in mortgage markets illustrate that an underlying assumption of the CRA that more lending equals better outcomes for local communities may not always hold’ said the Fed chief.
The main aim of the Federal Reserve’s chief was that to highlight the evolution of the law and challenges posed by an often-changing financial landscape. The Fed and other bank regulators have came under intense condemnation by lawmakers in recent times for their role in allowing too many borrowers to get mortgages despite the fact that they could not afford to repay.
The Community Reinvestment Act has the provision that requires the Fed and other U.S. banking regulators to provide ratings to banks based on how well they serve their entire communities. The law also offers guidelines for ways to augment lending to underserved section of local economies and populations.
