Theses, Dissertations, and Capstone Projects

Year of Award

1991

Degree

Master of Business Administration (MBA)

College

College of Business & Professional Studies

Degree Program

Business

Department

Business Administration

Keywords

credit, regulatory, federal, FDIC, lenders, CRA

Abstract

As banks have attempted to grow by Merger and by acquisition within the last few years» they have discovered that poor performance (or public perception of poor performance) in community investment can and will be used by local community groups and activists to halt or delay acquisitions or mergers. Special interest groups draw their clout from the Community Reinvestment Act of 1977 (CRA) which requires banks to meet the credit needs of an entire community, including low- and moderate-income neighborhoods and small businesses and farms. Its enforcement lies primarily in the requirement that a bank's CRA record be taken into consideration when requests for new branches, mergers, acquisitions or other moves that require regulatory approval are being evaluated.

The original CRA legislation was vague as to both the bank's compliance and regulators enforcement. While the statute provided for no direct criminal or civil penalties for noncompliance, penalties for noncompliance rest almost entirely on the ability of the federal regulatory agencies to deny or approve a charter, a new branch, a merger, or an acquisition.

Since its enactment in 1977 through 1988, there have been few public actions by regulators under CRA. There were a series of events which took place in early 1989 which brought CRA from a quiet existence to the forefront of bank manager's policies and strategies. The importance and visibility of CRA is more pronounced today than ever due to the number of prospective expansion and merger plans in the banking industry.

Unless a bank is progressive and proactive in its CRA activities and documenting the direction of bank services to the low- and moderate-income neighborhoods, it risks confrontation with special interest groups. The cost of such intervention is great. Not only does the bank incur the cost of defending itself against protests and criticisms, it also risks loosing the proposed expansion itself.

Document Type

Restricted Thesis

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