Here are some more debunkings of the argument that the 1977 CRA somehow caused the recent financial meltdown. One of the key problems with the argument, as Ellen Seidman points out, is the timing of the crisis. The CRA's teeth are supplied by the penalties it metes out to those covered entities who earn low CRA scores (e.g., low CRA scores made it hard to get bank mergers approved). Those teeth were at their strongest in the mid-1990s, when the federal government was serious about CRA enforcement and a lot of banks wanted the goodies associated with having a good CRA score. But, despite that favorable ecology, no housing bubble emerged in the mid-1990s:
CRA enforcement became a lower priority for bank regulators after 2001. My successor at the Office of Thrift Supervision, in fact, led an effort-eventually thwarted-to unilaterally loosen CRA regulations for institutions with more than $1 billion in assets. See 70 Fed. Reg. 10023. Nevertheless, CRA regulations were eased more generally in 2005. See 70 Fed. Reg. 44256.The years that coincided with reduced CRA enforcement are also the years when CRA-covered entities wandered deeper into "higher priced loans," a category that includes, but is not limited to, "exploding ARMs" and other particularly pernicious kinds of loans. Thanks to the valiant efforts of late Fed Governor Ned Gramlich, starting in 2004 we have data about "higher priced loans." In that year, bank, thrifts and their subsidiaries-the entities covered by CRA-made about 37% of high cost loans. By 2006, the bank, thrift and subsidiary percentage was up to 40.9%. That a lack of interest in CRA enforcement coincided with CRA-covered entities getting into higher priced lending does not seem to me an argument for less CRA enforcement. Rather, it's an argument for better enforcement of a statute that, when well enforced, had proven its worth in helping both borrowers and communities.
Despite this temporal mismatch, some conservatives continue to press this argument. That, my friends, is not a causal inference you can believe in.
