Responsible Banking and the Challenges of Community Development Legislation

This year, the City of Pittsburgh contracted with PCRG to help streamline the implementation of the City’s Responsible Banking Ordinance (RBO), passed in 2012.The Responsible Banking Ordinance brings the lessons of the federal Community Reinvestment Act (CRA) to the local level. When Congress passed the CRA in the 1970s to combat redlining, its premise was this: financial institutions have an obligation, in return for deposit insurance and other backing provided by American taxpayers, to meet the credit needs of the communities where they operate.The premise of local RBOs is similar: Local governments and agencies have large operating budgets that they deposit in financial institutions every year, and the financial institutions benefit from being able to hold that money and use it to make loans and investments. In return, banks have an obligation to reinvest in the communities whose money they are holding.In practice, the proposals the City has received since the RBO was passed have been largely incomplete, inconsistent in format, and difficult to evaluate and compare with each other. Why?Picture this: someone in the government relations section of a bank gets a request for proposals to provide depository services to the City of Pittsburgh. They read through the RFP and try to figure out what data they need to provide. They have multiple reporting requirements already, and the data request they now have to meet does not seem to line up exactly with the systems the bank has set up for collecting and reporting data to the federal government. It is not clear exactly how to pull data that would match what the RFP is asking for, and in some cases the data requested is not precisely defined. Some of the data is already publicly available, some of it is reported to the federal government but not released publicly, and some of it is proprietary to the bank. In smaller banks, the individuals responsible for reporting this data wear many hats and are not primarily trained data analysts.The result, in short, is data submissions that don’t line up with what was intended by the RBO. The City wants to select banks that show a real commitment to investing in Pittsburgh neighborhoods and communities, but it is difficult to do that based on the proposals received.PCRG is working with the City’s Department of Finance and the Controller’s office to redesign the process so that the reporting requirements for banks are as simple and clear as possible, and the data is submitted in a consistent form across proposals. This is just a step in the process towards achieving the real goal of the RBO: to encourage banks to increase their commitment to underserved communities in the City of Pittsburgh.There is a general lesson here for community development legislation that requires technical expertise to implement: a clear, well-defined implementation plan is as important as the legislation itself. PCRG’s national partner organization, the National Community Reinvestment Coalition, is working on a new model Responsible Banking Ordinance in response to the overturning of New York City’s RBO in federal court. PCRG hopes to contribute to this process, in part by helping to produce an implementation guide to accompany the model ordinance.