Abstract

The Community Reinvestment Act (CRA) requires U.S. banks to make loans available in low- and middle-income sectors of their communities. Vaguely worded and unevenly enforced, CRA has created a major dilemma for banks because their CRA ratings are open to public scrutiny and used by regulators in determining whether to permit a bank to expand its products, services, or geo- graphic presence. Ironically, foreign banks doing business in the United States have been able to avoid the impact of CRA because of legal privileges that are now disappearing. As Depression era-banking laws are set aside so that American banks can regain their international competitiveness, foreign banks in the United States will be forced to comply with CRA to take full advantage of the new opportunities available in the American banking arena. Based on current evidence, it appears that CRA may be a major stumbling block in the path of future foreign bank expansion in the United States.