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Enhancements Needed to the Community Reinvestment Act

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The Community Reinvestment Act (CRA) of 1977, has become the most powerful engine of capital formation for developing affordable housing in the United States, according to research conducted by CohnReznick LLP, the nation’s 11th largest accounting, tax, and advisory firm.

According to the new study, the CRA’s investment test is largely responsible for motivating U.S. banks to become the largest investors in affordable housing developments. The study also finds that bank capital can be more efficiently deployed by revising CRA regulations.

CohnReznick’s report The Community Reinvestment Act and its Effect on Housing Tax Credit Pricing is available for review at www.cohnreznick.com/cra-study.

“Based on our research, we encourage the adoption of more flexible rules for measuring bank performance under the CRA’s investment test. CRA assessment areas should be the principal, rather than the exclusive areas in which banks make their community development investments,” says Fred Copeman, CohnReznick Principal and National Director of the firm’s Tax Credit Investment Services (TCIS) practice. “To the extent investment test targets are based on deposit volume, deposits from overseas customers or corporations and institutional investors domiciled outside the bank’s assessment area should be excluded. Moreover, banks should be permitted to invest in broader statewide and regional areas that could include bank assessment areas.”

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