What if I told you there’s a relatively small group of people with absolutely huge power to promote a more equitable society, but they just don’t quite realize it yet? This small, powerful group happens to be the Federal Reserve.
“There’s a lot of really key decisions that the Federal Reserve Board of Governors makes in their hermetically sealed room with a ton of input from bank lobbyists,” says Benjamin Dulchin, executive director of the Association for Neighborhood and Housing Development (ANHD), based in NYC. “It’s important that there be a community voice there. There’ve been these moments where a community voice really could have been so key.”
As of November 20, 2015, the Fed will have more help finding its way to equity. That’s the date of the Fed’s first meeting with its newly created 15-member Community Advisory Council (CAC). The Fed plans to convene the council twice a year. Dulchin is one of the 15 inaugural members serving terms up to three years. (Some initial members are serving one or two years to stagger the terms.)
“The CAC is composed of individuals with consumer- and community development-related expertise who will provide information, advice and recommendations to the Board on a wide range of relevant policy matters and emerging issues of interest,” the Fed said in a statement announcing the group.
“From the point of view of the Fed, there’s so much information out there, doing their job is not just a matter of information, it’s a matter of what information they look at, what information do they take seriously,” Dulchin says.
Taking information from community voices more seriously could have tremendous implications, and not just for the poorest or most vulnerable — for the economy as a whole.
Dulchin recalls back in the early ’00s, a flood of mostly private equity-backed capital began invading the neighborhoods where ANHD’s 99 members work, building mostly small-scale affordable housing (“one-to-fours,” in affordable housing lingo, as in one- to four-family buildings), as well as providing services and other small-scale development activities.
The invasion was facilitated by the same lax regulatory enforcement that caused the 2008 financial crisis and ensuing Great Recession, according to Dulchin. If the community had a larger voice in banking regulation, he says, the crisis could have been averted by much earlier regulatory action.
“Community groups like our members knew that predatory lending was becoming a thing,” Dulchin says.
In addition to avoiding the bad, the Community Reinvestment Act (CRA) gives regulators a lot of power to do good, if only they would take the community’s voices more seriously. The act, passed in 1977, essentially means banks get brownie points for providing financial services in certain marginalized, underserved communities, like those they historically redlined. The brownie points count for them when it comes to future approvals of bank mergers, charters, acquisitions, branch openings and other transactions.
Local networks of community activists are essential to the success of the CRA.
“The regulators need to stay tightly on banks about this, and we need to stay tightly on the regulators, because it’s a very vague set of laws,” Dulchin says. “It’s designed to be interpreted very locally, and if you don’t have a local group that’s interpreting it and pushing it and raising the bar, the quality and quantity of and participation tends to slip.”
One of the things that local groups can also do is help define what kinds of banking activities count for banks when it comes to the CRA. In NYC, that has historically tended to be financing for groups like ANHD’s members to build the kinds of multi-family housing they build. But now, on behalf of its members, ANHD intends to broaden that definition.
“The way that the CRA has been really thoroughly applied to affordable housing, and has really brought a lot of financial industry figures to the table to do a whole lot of good community development stuff, similarly there is a whole set of things that they can and should be doing around economic development,” Dulchin says.
At ANHD, senior campaign analyst Jaime Weisberg has been essential to that work, serving as the lead author of a white paper outlining $1 billion in NYC program opportunities in which banks can take part to support equitable economic development (earning those precious brownie points in the process).
Weisberg highlights activities supporting small businesses, or light manufacturing as it tends to pay better wages, and creates entry points to learn new skills among those who might not have much of a formal education.
“But we’re really focused not on any one particular sector. We’re focusing instead on the quality of the jobs,” Weisberg says. She and Dulchin plan to bring the perspective on equitable economic development to CAC discussions with the Fed.
As the most well-known financial regulator, the Fed’s conduct has a knock-on effect. It’s the “one regulator to rule them all.”
“While it doesn’t regulate the most banking institutions, it has a lot of leverage,” Dulchin says. “They’re the ones who convene all the other bank regulators and have all the policy conversations.”
The Equity Factor is made possible with the support of the Surdna Foundation.
Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.