During yesterday’s confirmation hearing, two questions posed by senators considering the nomination of Dr. Saule Omarova to lead the Office of the Comptroller of the Currency (OCC) demonstrated the widespread interest in updating the Community Reinvestment Act (CRA).
Dr. Omarova’s responses to their questions indicated that if confirmed, she would support an added emphasis for considering race in CRA, address banking deserts and immediately seek to strengthen how the OCC holds banks accountable through better enforcement.
“The Community Reinvestment Act is an important civil rights law. I hope upon your confirmation, you will work on a revamped CRA rule that will deal with some of the challenges we have with minority small and mid-sized business owners’ lack of access to credit, a problem particular evidenced in minority communities hit disproportionately particularly hard by the pandemic. What changes do you think the OCC should seek to implement to make sure that banks through the CRA are better serving minority businesses?
“So, thank you, Senator. I agree with you that the Community Reinvestment Act is a critical civil rights era law, and I am glad that financial regulators, including the current Comptroller, are working together to assess the performance of our banks with respect to channeling credit into low- and moderate-income communities, communities of color, rural areas, and other current banking deserts. If confirmed as the Comptroller, I intend to take the CRA performance, and the implementation of the new rule, very seriously. The OCC’s primary toolkit is of course supervision, and I would want to talk to the professionals at the OCC as to what they see as the key issues on the ground that stand in the way of making sure that our banks fulfill their CRA duties properly.”
By saying “the primary toolkit is of course supervision,” she has pointed to an important aspect of how the OCC regulates CRA – through examination – and that she would address known problems such as grade inflation. Advocates have long argued that supervision of community reinvestment should be ongoing and not just a consideration during exams or merger applications. Evidence exists to suggest that previous comptrollers have been less than demanding – for example, more than 98% of banks received a passing grade or better in 2014 – so her diagnosis of a need for better supervision is well-taken. Her prior scholarship also suggests she would expect examiners to take seriously the input received from the public.
“Now there is some consensus for change to the Community Reinvestment Act to reflect the growth of online banking, a larger financial services ecosystem, and others have you given any thought to changes to the CRA and how do you think the OCC works with other regulators on any changes to the CRA.”
“Thank you. I do believe that the CRA is an incredibly important tool in the toolkit of bank regulators to ensure banks provide financial services, channel investments, and provide credit to low-income and moderate-income communities, communities of color, and rural communities – all those communities that are currently known as banking deserts, and I am very happy that the acting Comptroller has resumed the OCC’s effort to collaborate with other financial regulators on the comprehensive revamping of the CRA to account for the new technologies and new abilities to serve this purpose.”
By echoing earlier references she made to the power of the CRA to address racial inequality, Omarova removed any uncertainty that could have remained about her commitment to applying the OCC’s CRA tool to defend civil rights.
Between its passage and subsequent regulatory implementation, the CRA lost some of its emphasis on racial discrimination. Political support for the enactment of CRA grew from organizing against racial redlining in minority communities but sidestepped race and instead focused on income. Earlier iterations of Home Mortgage Disclosure Act (HMDA) data did not include the race or ethnicity of applicants.
NCRC shares Omarova’s concerns about banking deserts. Research published by both NCRC and federal regulators reveals the decline in rural bank branches and how, in the wake of the departure of banks from these areas, needs for financial services go unmet. CRA exams often focus on evaluating banks mainly in places where they have branches – so as communities lose the direct provision of banking services due to branch losses, they are simultaneously deprived of CRA-driven banking services. Research shows that the loss of CRA obligations results in significant disruptions to how mortgage applicants and small businesses can access credit.
Senators did not touch upon several important issues such as whether Omarosa would revive the controversial fintech charter or if she believes that the definition of the “business of banking” is a settled question. Those topics consumed a large share of the OCC’s work during the service of former Comptroller Thomas Curry and Acting Comptroller Brian Brooks. Earlier this month, Acting Comptroller Michael S. Hsu spoke of the concerns he has for firms operating “outside of the regulatory perimeter,” including uninsured depositories and novel charters, that could harm consumers and disrupt markets. Several senators chose to ignore these issues and to instead focus on Omarova’s patriotism or her views on central bank digital currency (CBDC), even though the Federal Reserve has the exclusive authority to set policy on CBDC.
The two takeaways from the hearing are that Omarova is committed to holding banks accountable for their community reinvestment obligations, and she and at least two senators on the committee understand the importance of CRA in achieving public policy goals and believes that its modernization can include greater emphasis on addressing our nation’s civil rights challenges.
Adam Rust is a Senior Policy Advisor at NCRC.