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Soon after a coalition of housing groups sat down for negotiations with mega-bank HSBC in August, they got a couple of big surprises. First off, they got what they wanted from the bank. HSBC, which is trying to acquire Republic Bank, generously promised to double its investments in poor neighborhoods over the next five years through a combination of rehab loans, mortgages, small business lending, and grants. The sum could ultimately add up to as much as $1.5 billion, according to calculations from American Banker.
Then, two days later, the group got another surprise: a mash note from Senator Phil Gramm. Right after the talks were finished, the powerful Republican wrote HSBC requesting copies of “all current and past agreements, agreement letters, [and] contracts of memorandums of understanding” regarding the coalition.
“In a weird way I’m sort of flattered,” laughed Irene Baldwin, executive director of the Association for Neighborhood and Housing Development and one of the coalition’s organizers. “But it takes on a bit of the sense of a witch hunt.”
Gramm isn’t just dogging Baldwin’s group. In the last few months, his staff has started peering over the shoulders of housing and community groups nationwide, all in the name of digging up dirt on the Community Reinvestment Act.
Shortly after he took over Al D’Amato’s old job as chair of the Senate Banking Committee, Gramm started looking for a way to do away with the 22-year-old CRA. The law requires banks to make loans throughout the area they are chartered to serve, even in poor neighborhoods that they traditionally avoid. Community groups often work with banks, helping them identify likely candidates for good loans.
But the same groups can also be a thorn in the side: if a bank with a bad lending record applies for a merger or expansion, public protest can make the process an expensive pain in the neck. So Gramm has gone on the warpath against CRA, calling it “a system of legalized extortion.” His staff has started to collect information on CRA deals nationwide, sending letters to banks and community groups in Texas, New York, Ohio and Massachusetts. According to documents obtained by Inner City Press’ Matthew Lee, Gramm’s staff has also asked the Federal Reserve Bank for all recent documentation relating to its CRA supervision, some 35,000 pages of paperwork.
Banking committee communications director Christie Harlan defended the requests as legitimate fact-finding. “This is an effort to find out exactly how CRA is being used,” she said. “What are [the community groups] so worried about?”
But advocates say it’s no innocent inquiry. They claim Gramm is building an enemies file, a dossier that will be transformed into a death sentence for the law. “He’s put out information that I would view as mischaracterizations at best and inflammatory at worst,” said Baldwin. “He seems to have this notion that groups are lining their pockets with CRA.”
Gramm’s new interest in dealings between groups and banks comes on top of threats to the law from the hotly debated “financial modernization” legislation now being hammered out in Congress. While the House’s version more or less preserves the law, the Senate’s version has provisions that would increase CRA reporting requirements and exempt many banks from CRA-related challenges. According to Harlan, Gramm said Thursday that once the debates on this legislation are through, he plans to have the committee hold additional hearings on CRA.