U.S. LAW GIVES SMALL BUSINESSES MORE FROM THEIR BANKS, SENATE COMMITTEE SAYS
OTTAWA - Today, as part of Small Business Week celebrations, the Canadian
Community Reinvestment Coalition (CCRC) called on the federal government
to heed the recent endorsement of the U.S. Community Reinvestment Act (CRA)
by the Senate Committee on Banking, Trade and Commerce. In the report,
Comparative Study of Financial Regulatory Regimes, the Committee
highlights the benefits of the CRA for small and medium-sized businesses
(SMEs) and communities across the U.S.
A federal law, the CRA requires banks and other financial institutions to seek out lending opportunities in the local communities in which they are located, relying on disclosure and incentives. Each financial institution is graded by regulators every 18 to 24 months based on its lending, investment and service record, including mortgage, small business, small farm and consumer loans, community development lending, branch openings and closures, and generally meeting needs of customers. No quotas or mandated lending is involved, and no bank is required to lend to bad credit risks.
As the Senate report points out, small businesses, community groups, and individuals can file complaints with regulators when they are making decisions about merger applications, acquisitions, branch openings and closures or other regulatory approvals. Applications to merge with or take over another institution, and other activities, can be denied by regulators if an institution has a failing grade.
The Senate Committee's report notes that the CRA's greatest contribution has been that it has changed the "psychology of lending" by encouraging lenders to ask themselves, "as a matter of routine business, whether they are serving all potential clients." (pp. 32-33 of the Committee's report). The CCRC's recent analysis of bank business lending shows the following decreases in bank lending to SMEs between December 31, 1995 and December 31, 1997 (the most recent date Canadian Bankers Association (CBA) statistics are available) (For the full 5-page report contact the CCRC):
"In the past two years, banks loaned more money to fewer big businesses,
who need the money least, while loaning less to small and medium-sized
businesses that have created 90% of the jobs in Canada over the past decade,"
said Duff Conacher, Coordinator of Democracy Watch and Chair of the over
100 group CCRC, "Laws like those in the U.S. would help ensure that
all businesses are served well."
As U.S. banks have had to for 20 years, as endorsed by the Senate Banking Committee, and as generally recommended in the recent report of the federal financial services Task Force, the CCRC called on the government to require Canadian banks to disclose data on loan applications, approvals, defaults and called loans categorized by the size, type and community of the business, and the gender for small business borrowers, along with data on branch openings and closures and service to customers. As in the U.S., if a bank has a poor record it should not be allowed to merge with another financial institution. "
As in the U.S., we need to ensure that we do not let any bank get bigger if it is not, among other things, serving the needs of job-creating businesses, communities, and customers " said Conacher.
Canadian Community Reinvestment Coalition
P.O. Box 1040, Station B, Ottawa, Canada K1P 5R1
Tel: (613) 789-5753
Fax: (613) 241-4758
Copyright 1998 Canadian Community Reinvestment Coalition