Responding to the financial crisis in our communities

1. Responding to the financial crisis in our communities Proposed open banking regulation in France inspired byCRA & HMDA CfRC ANNUAL CONFERENCELONDON 26 SEPTEMBER 2012DR. KENT HUDSONKHNET, INCPROJECT MANAGERBANQUES ET TERRITOIRES, PARIShttp://www.lelabo-ess.org/?-Banques-et-territoires-

2. CRA AND HMDA HMDA 1976 THE HOME MORTGAGE DATA ACT • REQUIRES ALL LENDERS INCLUDING REGULATED BANKS TO REPORT ANNUALLY ON EVERY REQUEST FOR A MORTGAGE LOAN (DODD-FRANK INCLUDES SMALL BUSINESS LOANS ) • DATA INCLUDE LOCALITY BY CENSUS TRACT AND USE (OF PROPERTY), PRICE, DEMOGRAPHICS ON BORROWER, ETC. • FULLY COMPATIBLE WITH CENSUS TRACT DATA FOR EASY ANALYTICS CRA 1977 THE COMMUNITY REINVESTMENT ACT • REQUIRES FDIC-INSURED COMMERCIAL BANKS (ONLY) TO MEET THE CREDIT NEEDS OF ALL COMMUNITIES SAFELY AND SOUNDLY.  • QUALITATIVE ASSESMENT OF REGULATED BANKS THUS PROTECTED THEM FROM SUBPRIME MORTGAGES IN THEIR ASSESSMENT AREAS. LONDON KHNET 2012

3. HOW THE 2 LAWS WORK TOGETHER A POSITIVE OBLIGATION  FOR BANKS TO MEET THE NEEDS OF EACH COMMUNITY SAFELY AND SOUNDLY • REGULATORS ASSEMBLE BANK DATA BY CENSUS TRACT TO COMPARE AND RATE BANK PEFORMANCE • REGULATORS MAKE PERIODIC INSPECTIONS AND USE HMDA DATA • LARGE STRATEGIC FREEDOM FOR BANKS TO COMPLY : CRA & HMDA DRIVE PARTNERSHIPS WITH SOCIAL BANKS AS WELL AS COMPETITION • PUBLISH RATINGS (CRA) & BANK DATA BY TRACT (HMDA) • 4 CRA SCORES : CREDIT, INVESTMENT, COMMUNITY DEVELOPMENT , SERVICE • REGULATORS MUST CONSIDER AND REPLY TO LOCAL COMMENTS IN ASSESSING EACH BANK • SANCTIONS RARELY USED • TEMPORARY HALT TO FUSIONS AND BRANCH EXPANSION, FINES • LOCAL GOVERNMENTS USE CRA RATINGS TOSELECT FINANCIAL PARTNERS; BANKSTATISTICS SUPPORT ANTIDISCRIMINATION SUITS … LONDON KHNET 2011

4. DISCUSSION UNDER TENSION ….ongoing discussions among key players in local economies, multiple pressures to improve…. BANKS local branch performance data Bank inspectors Local officials, business evaluate local performance groups, investors, unions, FED, FDIC, OCC neighborhood groups GOVERNMENT LOCAL GROUPS LOCAL BANK DATA AT THE CENSUS TRACT LEVEL KHNET LONDON 2012

5. ECONOMIC RESULTS OF CRA(US dollars) • 500+ multiannual CRA agreements between social lenders and regulated banks(1996 - 2011) • $5 trillion in bank commitments (over 10 years) • $1.4 trillion in CRA bank loans (1996 - 2009) few to no subprimes • Over $50 billion per year on average • 60% of loans to SME, 40% home ownership, no consumer credit • $68.5 billion in Investments, capacity building & services (1996 – 2009) • $33 billion in investments with social bank partners and in local development capital risk • $16 billion in capacity building, technical assistance to social bank and other partners • Small administrative costs for banks LONDON- KHNET2012

6. BANKS & SOCIAL ENTERPRISES RESULTS-BASED PARTNERSHIPS TO MEET THEIR CRA OBLIGATIONS, SOME BANKS SEEK PARTNERSHIPS WITH SOCIAL LENDERS. BANKS RETAIN FULL LEGAL RESPONSABILITY FOR PRUDENT, EQUITABLE SERVICE IN TARGET AREAS Pay “PAY OR PLAY : LES • 6000 SOCIAL ENTERPRISES, NON-PROFITS & LOCAL GROUPS (fundedwithoutspecial subsidies) • 2000+ SOCIAL BANKS & FUNDS IN URBAN AND RURAL AREAS (including1200 CDFI banks & 300 cooperativebanks) • OVER 120 LOCAL DEVELOPMENT CAPITAL RISK FUNDS • MORE THAN 55 000 EMPLOYEES • APPROXIMATELY $ 45 BILLION IN COMBINED ASSETS (US dollars, est. NCRC 2009) LONDON- KHNET 2012

7. US CITIES WITH LOCAL CRA LEGISLATION LONDON KHNET 2012

8. A POLICY ADVOCACYOPINION • CRISIS A FAILURE OF PRUDENTIAL REGULATION • REGULATORY CAPTURE BY CASINO FINANCE, BANK RENTS… • SYSTEMIC UNDERSERVICE TO SME’S AND TO LOW-RETURN TERRITORIES : MOST OF EUROPE ? • ELECTED OFFICIALS DON’T « GET » FINANCE: THEY NEED CREDIBLE INDEPENDENT EXPERTISE • RESCALE RETAIL BANKING TO DEVELOP EUROPE’S TERRITORIES • UNTENABLE SITUATIONS AND POLITICAL DANGER ACROSS EUROPE • PUBLIC ACTION CAN’T REPLACE BANK EXPERTISE : LOCAL BUSINESS NEEDS GOOD BANKERS • SOCIAL FINANCE MUCH TOO SMALL TO SCALE UP • GET MUCH MORE SERIOUS ABOUT PUBLIC INTEREST POLICY ADVOCACY • BROAD CONSENSUS TO REGULATE FOR RESPONSABLE RETAIL BANKING • SUCCESS OF HMDA AND CRA IN SUBPRIME CRISIS MAKES REGULATION EASIER TO ARGUE • A POSITIVE OBLIGATION FOR BANKS TO SERVE ALL TERRITORIES PRUDENTLY • FULL BANK TRANSPARENCY ENABLES SOUND BANKING AND COMPETITIVE GROWTH. IT ALSO EMPOWERS SOCIAL INCLUSION PARIS - KHNET 2012

9. A LEGISLATIVE PROPOSAL IN FRANCE AND IN EUROPE • REQUIRE ALL BANKS, AS A CONDITION OF THEIR BUSINESS, TO SERVE THE BANKING NEEDS OF ALL TERRITORIES SAFELY AND SOUNDLY AND TO PROVE IT BY PUBLISHING PERTINENT SERVICE, SAVINGS AND PRODUCTION DATA • REQUIRE BANK REGULATORS : • TO CONSULT WITH BANKS IN SETTING NORMS, FREQUENCY AND FORMAT FOR BANK DATA AND REPORTS • TO EVALUATE EACH BANK REGULARLY ON PERFORMACE BY TERRITORY AND GLOBALLY • TO PUBLISH THE EVALUATIONS WITH PUBLIC COMMENTS IN EACH TERRITORY • REQUIRE THE BANK REGULATORS TO MAP THE ADEQUACY OF FINANCIAL SERVICES TERRITORY BY TERRITORY, BANK BY BANK • CREATE CONSEQUENCES FOR BANKS THAT FAIL TO COMPLY LONDON KHNET 2012

10. DEVELOPPING COUNTRIES WITH SIMILAR LEGISLATION Brazil: banks must set aside 2% of net reserves for microcredit (“Resoluçaò 3019” of the National Monetary Council ; aspects of the Caixa Economica Federal) China: Study underway on adapting CRA to promote and oversee rural lending and investmentsIndia: 40% of total bank loans to 14 development sectors (“Priority Sector Lending” regulations) see (www.rbi.org.in/scriptds/FAQView )South Africa: Unspecified set-asides (Financial Services Charter within the Black Economic Empowerment Act of 2003) see(www.fscharter.co.za/page.php?p_id=137 ) LONDON KHNET 2012

11. THANK YOU KENT HUDSONKHNET, INC.KENT@KHNETONLINE.COMPROJECT MANAGER “BANQUES ET TERRITOIRES”http://www.lelabo-ess.org/?-Banques-et-territoires-