What was the effect of the Community Reinvestment Act of 1977?
The Community Reinvestment Act (CRA), enacted in 1977, requires the Federal Reserve and other federal banking regulators to encourage financial institutions to help meet the credit needs of the communities in which they do business, including low- and moderate-income (LMI) neighborhoods.
What was the main cause of the 2008 financial crisis?
Deregulation in the financial industry was the primary cause of the 2008 financial crash. Since home loans were intimately tied to hedge funds, derivatives, and credit default swaps, the resounding crash in the housing industry drove the U.S. financial industry to its knees as well.
What really caused the financial crisis?
The collapse of the housing market — fueled by low interest rates, easy credit, insufficient regulation, and toxic subprime mortgages — led to the economic crisis. The Great Recession’s legacy includes new financial regulations and an activist Fed.
Was the CRA successful?
The overwhelming majority of studies find that the CRA has succeeded in increasing lending in low- and moderate-income neighborhoods. Inner cities have not yet been wholly transformed by the CRA, but they have been demonstrably improved by the act’s implementa- tion.
Why was the Community Reinvestment Act of 1977 criticized after the onset of the Great Recession?
The proposed law was the subject of heated debate. Critics were concerned the law would create distortions in credit markets and result in credit allocation by the federal bank regulators. They also noted an already heavy regulatory burden, and felt the CRA would encourage riskier lending.
What did the Community Reinvestment Act outlaw?
Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining….Community Reinvestment Act.
| Long title | An Act to amend certain Federal laws pertaining to community development, housing, and related programs. |
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What caused the financial crisis of 2007?
The 2007 financial crisis is the breakdown of trust that occurred between banks the year before the 2008 financial crisis. It was caused by the subprime mortgage crisis, which itself was caused by the unregulated use of derivatives. Despite these efforts, the financial crisis still led to the Great Recession.
Why was the Community Reinvestment Act CRA originally created?
The Community Reinvestment Act (CRA) is a federal law enacted in 1977 to encourage depository institutions to meet the credit needs of low- and moderate-income neighborhoods. The CRA requires federal regulators to assess how well each bank fulfills its obligations to these communities.
Who started the Community Reinvestment Act?
Community Reinvestment Act of 1977 The original Act was passed by the 95th United States Congress and signed into law by President Jimmy Carter on October 12, 1977 (Pub. L. 95-128, 12 U.S.C. ch.
What did the Community Reinvestment Act have to do with the housing bubble and collapse?
The Community Reinvestment Act encourages bank lending to low- and moderate-income neighborhoods. Enacted in 1977, it sought to eliminate bank “redlining” of poor neighborhoods. As a result, banks would not approve mortgages for anyone who lived in those areas.
What’s the purpose of the Community Reinvestment Act quizlet?
Is intended to ENCOURAGE depository institutions to help meet the credit needs of the communities in which they operate, including LOW- and MODERATE-INCOME NEIGHBORHOODS, consistent with safe and sound banking operations. You just studied 27 terms!
How does the Community Reinvestment Act affect banks?
The Reinvestment Act mandated that the bank’s lending record to these neighborhoods is periodically reviewed by each bank’s regulatory agency. If a bank does poorly on this review, it might not get the approvals it seeks to grow its business.
How did the CRA contribute to the financial crisis?
If the CRA did contribute to the financial crisis, it was small. An MIT study found that banks increased their risky lending by about 5 percent in the quarters leading up to the CRA inspections. These loans defaulted 15 percent more frequently. This was more likely to happen in the “greenlined” areas.
Why was this 1977 law did not create the 2008 financial crisis?
Why This 1977 Law Did Not Create the 2008 Financial Crisis. The Community Reinvestment Act encourages bank lending to low- and moderate-income neighborhoods. Enacted in 1977, it sought to eliminate bank “redlining” of poor neighborhoods. That had contributed to the growth of ghettos in the 1970s.
Who is Michael Boyle of Community Reinvestment Act?
Michael Boyle is an experienced financial professional with 9+ years working with Financial Planning, Derivatives, Equities, Fixed Income, Project Management, and Analytics. The Community Reinvestment Act encourages bank lending to low- and moderate-income neighborhoods.