By: Emily Garr Pacetti, VP & Community Affairs Officer, Federal Reserve Bank of Cleveland

The views expressed here are my own and not the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

The Community Reinvestment Act, or CRA, passed in 1977 in response to broad-based redlining that was especially detrimental to Black individuals and families. Redlining, the discriminatory practice of denying people access to financial resources because of their race, choked the growth in many poorer, often Black neighborhoods. The law was meant to ensure banks responded to the credit needs of individuals and neighborhoods in which they are chartered to do business, and is up for its first significant revision in 25 years. 

My position as Community Affairs Officer (CAO) is rooted in the CRA. Shortly after it was enacted, the Federal Reserve Board asked each of the 12 Reserve Banks across the country to appoint a CAO to provide training and support to financial depository institutions (aka banks) to help them understand and comply with the CRA.

Like the law itself, the CAO role and the community development department have evolved, and must continue to evolve, in response to changing economic and social challenges facing lower-income individuals and communities. More than providing technical assistance and programming for banks, our community development team gathers and shares data and insights for and about lower-income communities in our 4th District (Ohio and part of Kentucky, Pennsylvania and West Virginia) on topics like economic and workforce development, small business and housing. We help Bank leadership, state and local policymakers, financial institutions and practitioners, make more informed decisions based on how the economy is working for all residents –not just some. 

CRA dollars matter 

Despite all the changes in the Community Development field, CRA remains a critical tool to address systemic disinvestment in lower-income and minority communities. This is especially true in many areas of the Northeast and Midwest that suffer from a legacy of deindustrialization, segregation and sprawl. 

We know:

  • Most Americans still live in racially segregated neighborhoods. And older industrial cities are 30 percent more racially segregated than the national average, according to in-depth 2018 analysis of 70 such places by Alan Berube and Cecile Murray.
  • Unfortunately, residential segregation today mirrors many of the redlined neighborhoods of the 40s, 50s and 60s. Check out the archive of Home Owners Loan Corporation maps at the University of Richmond’s Mapping Inequality site. 
  • The Black-white wealth gap widened because of redlining, but it persists largely through disparities in earnings, according to my colleagues Dionissi Aliprantis and Daniel Carroll. Despite Black households experiencing income gains years after the recovery from the Great Recession, the pay gap is still significant in places like Milwaukee, Minneapolis and Cleveland. Even in later years of the recovery Layisha Bailey and I count more places where earnings gaps between minority and white workers increased than decreased. From what we know of the sectors and populations hardest hit by Covid-19, documented well in the National Equity Atlas, these pay gaps are likely only to be exacerbated, not improved. 
  • According to EIG’s latest Distressed Communities Index, more than half of Black individuals in the Midwest live in economically distressed zip codes, compared to 35 percent nationally. And of the region’s majority-Black zip codes, 82 percent are distressed. “In the Midwest in particular, Blacks are disproportionately urban, and urban areas are disproportionately distressed,” the authors write. 
  • The legacy of racism remains a drag not just in Black individuals and communities in Midwestern cities, but the broader economy and surrounding regions. Berube says it best: “if the consequences of those disparities were limited to these cities’ African American communities alone, perhaps they would be easier for some to ignore. But these gaps have larger reverberating effects on the local economy that threaten wider progress and prospects.”

Here in Ohio, banks invest billions of dollars every year in CRA-related investments in the state and surrounding. Take Huntington’s recent $20 million, 5-year Community Plan focused on access to capital, affordable housing and homeownership and community and business lending. Or Key Bank’s $16.5 million, 5-year Community Benefits Plan and Fifth Third’s $32 billion, 5-year Community Commitment, both announced in 2016. 

Bank investments can’t erase history, but they can prevent a repeat and optimally combat systemic racism by investing in people and places that revalue Black neighborhoods, individuals, and businesses.

Have your say

The real opportunity to make sure CRA works for both banks and communities lies within the implementation of the law itself. The Federal Reserve Board recently announced its own proposed changes through an Advance Notice of Proposed Rulemaking (ANPR). The comment period is open until February 16th and Reserve Banks across the country including our own, are engaging with the public around a whopping 99 questions about potential changes to the law’s implementation. These include:

  • Providing greater transparency about what counts for CRA consideration, e.g. publish an illustrative list and a pre-approval process (Q71). Right now it’s hard for banks to know what counts and may prevent more strategic investments, prompting programs like Investment Connection that help but don’t resolve the underlying uncertainty that banks face.
  • Updating where it is CRA activity should count, e.g. consider having nationwide assessment areas for internet banks, smaller geographies for small banks, ensure banks’ assessment areas do not arbitrarily exclude LMI census tracts (Q3), and potentially expand areas for CRA consideration (Q68, Q69)
  • Ensuring community development financing and retail services are responsive to LMI communities and customers, e.g. how to define banking deserts in rural and urban contexts (Q25) and what data are best to assess the usefulness of banking products for LMI consumers (Q29) and community development financing activities (Q47).

The risk of CRA modernization if not thoughtfully implemented, is big. One can imagine that much is missed in a diverse country served by such a varied and changing set of financial institutions. That’s why I encourage everyone with a stake in community development, from bankers to community stakeholders to local policymakers, to take a look at the ANPR and submit a comment on issues for which you have unique insight. The rulemaking process will benefit from your perspective. 

I’m proud that my position is rooted in legislation of such importance to low-income communities, especially those economically sidelined by racist systems. Yet history is a reminder that having a law in place is not enough. We must ensure that the CRA reaches its potential just as we must help ensure that individuals and communities reach theirs. And that’s a job by and for all of us.

Related Resources

Members of the public can submit comments on the Advance Notice of Propose Rulemaking until February 16, 2021. 

The Federal Reserve System and Community Development: The Why, The How, and The What,” Speech by Loretta Mester, President of the Federal Reserve Bank of Cleveland, Policy Summit 2017

Understanding the Legacy Costs of Segregation: A Path to Racial Equity,” A Panel with Richard Rothstein, Darrick Hamilton, and Kendra Freeman, Policy Summit 2019

Program on Racial and Economic Inclusion– Data, analysis and programming that advances racial and economic inclusion, at the Federal Reserve Bank of Cleveland

Racism & the Economy Series: A series of virtual events hosted by all 12 Federal Reserve Banks to understand the implications of structural racism in America’s Economy and advancing actions to improve economic outcomes for all.

The CRA Is Important for Underserved Communities, and Your Input Can Help Modernize It,” Susan Schaaf, 2020

Divided by Design: Tracking Neighborhood Racial Segregation in Cleveland

Undesign the Redline– A Traveling Exhibit available in cities across the U.S.




Distressed Communities Index (DCI) Legacy Cities  

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