Investment in local areas urged

Big investment banks that played a role in the sub-prime mortgage crisis by funding the loans and selling them as securities should be required to invest in local communities, a U.S. financial regulator says.

John Dugan, head of the U.S. Office of Comptroller of the Currency, said in remarks prepared for delivery to an affordable-housing group that expanding the Community Reinvestment Act to include big investment banks could add billions of dollars to local areas.

“These nonbanks, having played such a large role in the sub-prime mortgages that have caused such problems in communities nationwide” have no incentive to address those problems because they aren’t covered by the act, Dugan said.

“To me, that is a world turned on its head,” he said.

The 1977 law requires deposit-taking banks to offer loans and credit to low- and moderate-income populations within their market area. A bank’s compliance with the act is taken into account when it wants to acquire another bank.

The law will be discussed at a House Financial Services Committee hearing today to see whether it should be expanded.