The Community Reinvestment Act (CRA) is an important regulation for banks. It ensures that banks don’t just loan money to affluent communities, but also to those with low and moderate incomes. But meeting CRA requirements can be complex. Measuring the social impact of Corporate Social Responsibility (CSR) programs can make this process easier and more effective.
What is the Community Reinvestment Act?
The CRA is a law that encourages banks to help meet the credit needs of the communities they serve. This includes loans, investments, and services to everyone, especially those with low and moderate incomes. Banks are regularly audited to confirm they are meeting these requirements.
How often do banks need to report on CRA?
Banks need to submit CRA data to one of three federal banking agencies or regulators who oversee CRA compliance. These include the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board (FRB), and Office of the Comptroller of the Currency. The frequency and type of these submissions can vary based on the size and scale of the bank, but they often occur annually. Additionally, banks undergo periodic assessments by their regulators to evaluate their community impact, with the frequency of these assessments depending again on the bank's size and past performance. Public disclosure of CRA information, including performance evaluations and public files, is also required.
One of the many ways banks prove they are meeting CRA requirements is by including any volunteering and financial giving through their CSR program that takes place in eligible low to moderate-income communities. However, tracking and verifying which volunteer and giving activities are eligible takes a considerable amount of staff time and resources. Many larger banks have dedicated teams that work on CRA programs only, while smaller banks rely on CSR teams to shoulder much of this work. Making this work easier would greatly help reduce company costs and resources.
How can measuring social impact help CRA reporting?
Measuring the social impact of CSR programs provides valuable insights that can help banks meet CRA requirements, saving them time and resources. This approach simplifies data collection and reporting, allowing banks to focus more on their community development efforts and less on CRA audit paperwork. Here’s how:
1. Streamline Data Management
By collecting and verifying the beneficiary, demographic and geographic information of their volunteer and giving activities banks can simplify the process of regular filings and uncover more CRA eligible activities.
2. Improve Your Results (without Increasing Your Budget)
Measuring the effectiveness of community development projects helps banks see which projects are making a real difference. With this insight, additional investment can be made in higher-performing volunteer and giving activities to increase CRA impact and audit scores.
3. Simplify Reporting
Creating clear and detailed reports to present to auditors during CRA assessments and public disclosures becomes easier with accurate impact data centralized in one place.
4. Increase Community Engagement & Insights
Understanding the needs of communities through feedback from community members and stakeholders helps banks stay connected and responsive. CRA compliance moves from something you have to do, to an opportunity to make a real impact in these communities.
5. Ensure Integrity
Complete CRA audits feeling confident in your data, with auditable results to support your legal, communications, and reporting teams.
Tracking Demographics and Socioeconomic Status
Tracking the demographics and socioeconomic status of the communities served by banks offers direct benefits. By understanding the specific needs and challenges faced by low- and moderate-income populations, banks can tailor their CSR programs more effectively. This targeted approach ensures that resources are allocated to areas where they can have the most significant impact. Additionally, detailed demographic data helps in identifying gaps in service, enabling banks to address unmet needs and improve their CRA performance. Furthermore, demonstrating a deep understanding of and commitment to serving diverse communities can enhance a bank's reputation and strengthen community relationships.
An Example
To better understand the connection between CSR and CRA, let's take a hypothetical example of a bank that has a CSR program focused on investments in affordable housing. Let’s say this CSR program partners with nonprofits that support individuals in targeted communities that are historically socioeconomically disadvantaged. If that CSR program tracked the number of individuals who gain long-term housing (or employment or financial improvement) because of their efforts, they could easily note this in their CRA assessments. This program would substantiate its results in a way that matters, not just for CRA requirements but also to the targeted community.
Conclusion
CRA was created to ensure banks don’t just loan money to and service higher-income communities. Still, it’s evolved into an opportunity for companies and their CSR programs to hone in on their resources to support the communities who need it most. Measuring the social impacts of CSR programs is a critical component for all companies to invest in so that they understand the impacts they are having. It also helps surface opportunities to adjust or re-allocate funding to support critical areas of need better. In doing so, social impact data can support many other business areas, including improving CRA compliance. By focusing on the real impact of their efforts, banks can ensure they are making a positive difference in the lives of those they serve while also saving on the resources it takes to compile and complete annual CRA audits. A win, win!
For more information on the CRA and how measuring social impact can help, visit reputable sources, contact experts in community development, or schedule time with one of our impact measurement experts. Let’s work together to create a positive impact in our communities!
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