February 12, 1995
By Hal S.
Hal S. Scott is Nomura Professor of International Fin ancial
Systems, Harvard Law School. 11is is an updated version of his
March 30, 1994, remarks to The Heritage Foundation's Regulatory
Reform Advisory Council. ISSN 0272-1155 0 1995 by The Heritage
proposals. Under the Investment Test, qualified investments
include grants to minority- and women-owned. financial institutions
and to organizations engaged in affordable housing rehabilitation
and construction, as well as not-for-profit 'Organizations serving
community economic development needs or supporting activities
essential to the capacity of low- or moderate-income individuals to
utilize credit or sustain economic development. Naturally, the
regulations do n o t require any assessment of the performance of
the grantees. Similar goodies for community groups are available
under the Community Development Test for wholesale banks. Small
banks get an exemption from these requirements; instead, they must
comply with a watered-down version of the regulation. Why is there
an exemption for small banks at all? Is this another manifestation
of small is beautiful? The reason, of course, is clear-the Admini-
stration feared their opposition. Small banks were not exempt from
p revious CRA requirements. There is no reason to give small banks
a competitive edge over large banks, and at the margin such
exemptions may discourage productive consolidations or mergers.
These new proposals will be quite costly and counterproductive. Re
a l costs will be im- posed on the general public. Borrowing costs
will go up, and tax revenues (which will have to be made up
somewhere) will go down. Productive activity will decrease. In the
longer term we risk endangering the banking system, and ultimat e
ly the American economy, by adopting those kinds of
command-and-control credit policies. The only virtue of the Clinton
proposals is to show how costly the CRA is when taken se- riously.
The right thing to do now is to repeal CRA; even in its
watered-down form it was undesirable, basically offering leverage
to community groups to grind their particular axes or enrich their
Read More >>
Heritage's daily Morning Bell e-mail keeps you updated on the ongoing policy battles in Washington and around the country.
The subscription is free and delivers you the latest conservative policy perspectives on the news each weekday--straight from Heritage experts.
The Morning Bell is your daily wake-up call offering a fresh, conservative analysis of the news.
More than 200,000 Americans rely on Heritage's Morning Bell to stay up to date on the policy battles that affect them.
Rush Limbaugh says "The Heritage Foundation's Morning Bell is just terrific!"
Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."
Sign up to start your free subscription today!
The Heritage Foundation is the nation’s most broadly supported public policy research institute, with hundreds of thousands of individual, foundation and corporate donors. Heritage, founded in February 1973, has a staff of 275 and an annual expense budget of $82.4 million.
Our mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense. Read More
© 2014, The Heritage Foundation Conservative policy research since 1973