Addressing Barriers to Inclusion
As Native communities tackle these impediments to financial inclusion, collaborative efforts across a range of public-sector, private-sector, and nonprofit organizations can be helpful. As part of our mission to build a strong, inclusive economy, the Federal Reserve has a role to play in supporting economic growth and financial inclusion in Native communities.
Community Reinvestment Act (CRA) Reform
The CRA is one powerful tool in building a more inclusive economy for individuals and communities. As one of several landmark civil rights laws to address systemic inequities in credit access, the CRA confers an affirmative obligation on banks to help meet the credit needs of the local communities in which they do business, including low- and moderate-income neighborhoods. The CRA prompts banks to be not only more active lenders in LMI areas, but it also encourages activities with minority depository institutions (MDIs) that are especially important to serving the credit and investment needs of minority communities.
We are working with the other banking agencies to propose CRA reforms that should improve financial inclusion and the availability of community development financing in underserved communities.30 As we work together to propose reforms to strengthen the law's core purpose, we have a unique opportunity to design a regulation that better addresses the credit needs for Native communities and in Indian Country—including increasing banking services, access to credit for households and businesses, and funding for community development.31
Two years ago, I had the pleasure of visiting with the Thunder Valley Community Development Corporation on the Pine Ridge Reservation in South Dakota. We toured a major housing, small business, and community development mixed-use project, which was under construction. Despite the importance of the Thunder Valley project to the community, banks were not among the funders listed for this important project. This illustrates the broader challenge faced by underserved communities where there are few bank branches.
I want to highlight two of the proposals that the Federal Reserve Board (the Board) sought feedback on in the September 2020 Advance Notice of Proposed Rulemaking to strengthen CRA regulations. Recognizing that many places in Indian Country have few bank branches and are located outside of branch-based assessment areas, the Board proposed that a bank in any part of the country could receive credit for eligible CRA activities in Indian Country, even when there is not a branch nearby. Banks need to be confident about receiving CRA credit to seek out activities and investments in these areas.
The Board has also sought feedback on ways to encourage and reward banks for activities that are responsive to community needs, particularly in harder-to-serve areas. One approach is the use of impact scores for community development activities to ensure that performance evaluations adequately reflect the relative importance of loans and investments within communities. As we work toward a set of interagency proposals on how to strengthen CRA regulations, we will continue to focus on and seek feedback on how to best encourage impactful CRA activities in Indian Country, including for building climate resilience where needed.32