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Professor Lawrence White Testifies Before Federal Banking Agencies Hearing

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On July 19, Lawrence White, Arthur E. Imperatore Professorship in Entrepreneurial Studies and Deputy Chair of the Economics Department at NYU Stern, testified at the Community Reinvestment Act (CRA) hearing held jointly by the Office of the Comptroller of the Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision. Professor White has previously written on the CRA, which was created in 1977 to reduce discriminatory credit practices against low-income neighborhoods.

Professor White believes that the CRA is not a good public policy tool for achieving equitable lending practices, calling it “an anachronistic and protectionist effort to force artificially a local focus for finance in an increasingly competitive, increasingly electronic, and ever-widening realm of financial services.” To achieve the goal, he suggests:

  • A more vigorous enforcement of anti-discrimination laws, notably, the Equal Credit Opportunity Act of 1974;
  • A vigorous enforcement of antitrust laws, especially with respect to mergers, to keep financial markets competitive;
  • Allowing companies that have a business model of providing good value to low- and moderate-income households -- such as Wal-Mart -- to enter banking, and
  • Socially worthwhile lending opportunities should be funded through an on-budget and transparent process

He also suggests that if “public policy persists with something that resembles the CRA, the annual local lending obligations of banks should be explicitly quantified. These obligations could then be traded among banks, so that a system could arise that is similar to the ‘cap and trade’ system.”

Read Prof. Lawrence White’s Testimony>>