President's Message: Encouraging Community Reinvestment

Thomas C. Melzer

Over the past few years, the debate about whether banks are doing enough to extend credit in their local communities has heated up.

Currently, along with other regulators, the Federal Reserve is working on a proposal that would modify the regulations concerning the Community Reinvestment Act, which requires lenders to make loans to all segments of their communities, including low- to moderate-income areas.

The Fed has an important role in enforcing this law. Specifically, we are instructed to evaluate each state member bank's community reinvestment efforts and consider this sort of evaluation when we review an application for merger or change in bank operations, including at the bank holding company level. But the Fed plays another role—one that may have a far greater impact on fostering community development.

Since 1981, the Federal Reserve has acted as a liaison between local bankers and community-based organizations. Our activities focus on identifying community needs and lending opportunities and encouraging alliances between bankers and their communities. This approach is based on a basic belief: If CRA is to succeed, both the lender and the community must benefit from their alliance.

At the Federal Reserve Bank of St. Louis, this effort is carried out through our Community Affairs Office. The Office's goal is to further credit access by facilitating partnerships between community groups, local governments and lenders.

Our activities usually fall into one of three categories: helping banks meet their community credit needs, serving as an information broker, or handling protests of community groups regarding banking practices. These activities are carried out in a number of ways, but most involve one-on-one meetings with community leaders and lenders, informational programs and research into community and lending needs.

Although the results of Community Affairs activities are difficult to quantify, the impact our Office has had on community development becomes clear when one hears the success stories related to us by lenders and community members. According to these groups, the Fed is making a unique contribution to economic development by building bridges between communities and lenders, and identifying efforts that will benefit both.

Because the Fed's community affairs activities are not well known and because the effect they are having on community development in the Eighth Federal Reserve District is important, we chose this as the topic of our 1993 annual report. I encourage you to read it. To request a copy of the annual report, call 1-800-333-0810 ext. 8809 or (314) 444-8809.


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