K H N E T regulation for OPEN BANKING HOW CRA & HMDA WORK CONVERGENCES 2015 PARIS 19 SEPTEMBER 2012 DR. KENT HUDSON KHNET, INC PROJECT MANAGER BANQUES ET TERRITOIRES, PARIS Innovative Funding Tools 1

K H N E T 2 CRA AND HMDA HMDA 1976 THE HOME MORTGAGE DATA ACT REQUIRES ALL LENDERS INCLUDING REGULATED BANKS TO REPORT ANNUALLY ON EVERY REQUEST FOR A MORTGAGE LOAN (DODD- FRANK INCLUDES SMALL BUSINESS LOANS ) DATA INCLUDE LOCALITY BY CENSUS TRACT AND USE (OF PROPERTY), PRICE, DEMOGRAPHICS ON BORROWER, ETC. FULLY COMPATIBLE WITH CENSUS TRACT DATA FOR EASY ANALYTICS CRA 1977 THE COMMUNITY REINVESTMENT ACT REQUIRES FDIC-INSURED COMMERCIAL BANKS (ONLY) TO MEET THE CREDIT NEEDS OF ALL COMMUNITIES SAFELY AND SOUNDLY. QUALITATIVE ASSESMENT OF REGULATED BANKS THUS PROTECTED THEM FROM SUBPRIME MORTGAGES IN THEIR ASSESSMENT AREAS. PARIS KHNET 2012

K H N E T 3 PARIS KHNET 2011 HOW THE 2 LAWS WORK TOGETHER A POSITIVE OBLIGATION FOR BANKS TO MEET THE NEEDS OF EACH COMMUNITY SAFELY AND SOUNDLY REGULATORS ASSEMBLE BANK DATA BY CENSUS TRACT TO COMPARE AND RATE BANK PEFORMANCE REGULATORS MAKE PERIODIC INSPECTIONS AND USE HMDA DATA LARGE STRATEGIC FREEDOM FOR BANKS TO COMPLY : CRA & HMDA DRIVE PARTNERSHIPS WITH SOCIAL BANKS AS WELL AS COMPETITION PUBLISH RATINGS ( CRA ) & BANK DATA BY TRACT (HMDA ) 4 CRA SCORES : CREDIT, INVESTMENT, COMMUNITY DEVELOPMENT, SERVICE REGULATORS MUST CONSIDER AND REPLY TO LOCAL COMMENTS IN ASSESSING EACH BANK SANCTIONS RARELY USED TEMPORARY HALT TO FUSIONS AND BRANCH EXPANSION, FINES LOCAL GOVERNMENTS USE CRA RATINGS TO SELECT FINANCIAL PARTNERS; BANK STATISTICS SUPPORT ANTIDISCRIMINATION SUITS …

K H N E T 4 ….ongoing discussions among key players in local economies, multiple pressures to improve…. BANKS local branch performance data Bank inspectors Local officials, business evaluate local performance groups, investors, unions, FED, FDIC, OCC neighborhood groups GOVERNMENT LOCAL GROUPS KHNET PARIS 2012 A DISCUSSION « UNDER TENSION » LOCAL BANK DATA AT THE CENSUS TRACT LEVEL

K H N E T 5 ECONOMIC RESULTS OF CRA (US dollars) 500+ multiannual CRA agreements between social lenders and regulated banks ( ) $5 trillion in bank commitments (over 10 years) $1.4 trillion in CRA bank loans ( ) few to no subprimes Over $50 billion per year on average 60% of loans to SME, 40% home ownership, no consumer credit $68.5 billion in Investments, capacity building & services (1996 – 2009) $33 billion in investments with social bank partners and in local development capital risk $16 billion in capacity building, technical assistance to social bank and other partners Small administrative costs for banks PARIS - KHNET 2011

K H N E T 6 BANKS & SOCIAL ENTERPRISES RESULTS-BASED PARTNERSHIPS 6000 SOCIAL ENTERPRISES, NON-PROFITS & LOCAL GROUPS (funded without special subsidies) SOCIAL BANKS & FUNDS IN URBAN AND RURAL AREAS (including 1200 CDFI banks & 300 cooperative banks) OVER 120 LOCAL DEVELOPMENT CAPITAL RISK FUNDS MORE THAN EMPLOYEES APPROXIMATELY $ 45 BILLION IN COMBINED ASSETS (US dollars, est. NCRC 2009) PARIS - KHNET 2012 PAY OR PLAY : LES Pay TO MEET THEIR CRA OBLIGATIONS, SOME BANKS SEEK PARTNERSHIPS WITH SOCIAL LENDERS. BANKS RETAIN FULL LEGAL RESPONSABILITY FOR PRUDENT, EQUITABLE SERVICE IN TARGET AREAS

K H N E T 7 US CITIES WITH LOCAL CRA LEGISLATION PARIS KHNET 2012

K H N E T 8 A POLICY ADVOCACY OPINION CRISIS A FAILURE OF PRUDENTIAL REGULATION REGULATORY CAPTURE BY CASINO FINANCE, BANK RENTS… SYSTEMIC UNDERSERVICE TO SMES AND TO LOW-RETURN TERRITORIES : MOST OF EUROPE ? ELECTED OFFICIALS DONT « GET » FINANCE: THEY NEED CREDIBLE INDEPENDENT EXPERTISE RESCALE RETAIL BANKING TO DEVELOP EUROPES TERRITORIES UNTENABLE SITUATIONS AND POLITICAL DANGER ACROSS EUROPE PUBLIC ACTION CANT REPLACE BANK EXPERTISE : LOCAL BUSINESS NEEDS GOOD BANKERS SOCIAL FINANCE MUCH TOO SMALL TO SCALE UP GET MUCH MORE SERIOUS ABOUT PUBLIC INTEREST POLICY ADVOCACY BROAD CONSENSUS TO REGULATE FOR RESPONSABLE RETAIL BANKING SUCCESS OF HMDA AND CRA IN SUBPRIME CRISIS MAKES REGULATION EASIER TO ARGUE A POSITIVE OBLIGATION FOR BANKS TO SERVE ALL TERRITORIES PRUDENTLY FULL BANK TRANSPARENCY ENABLES SOUND BANKING AND COMPETITIVE GROWTH. IT ALSO EMPOWERS SOCIAL INCLUSION PARIS - KHNET 2012

K H N E T 9 A LEGISLATIVE PROPOSAL IN FRANCE AND IN EUROPE REQUIRE ALL BANKS, AS A CONDITION OF THEIR BUSINESS, TO SERVE THE BANKING NEEDS OF ALL TERRITORIES SAFELY AND SOUNDLY AND TO PROVE IT BY PUBLISHING PERTINENT SERVICE, SAVINGS AND PRODUCTION DATA REQUIRE BANK REGULATORS : TO CONSULT WITH BANKS IN SETTING NORMS, FREQUENCY AND FORMAT FOR BANK DATA REPORTS ? TO EVALUATE EACH BANK REGULARLY ON PERFORMACE BY TERRITORY AND GLOBALLY ? TO PUBLISH THE EVALUATIONS WITH PUBLIC COMMENTS IN EACH TERRITORY ? REQUIRE THE BANK REGULATORS TO MAP THE ADEQUACY OF FINANCIAL SERVICES TERRITORY BY TERRITORY, BANK BY BANK CREATE CONSEQUENCES FOR BANKS THAT FAIL TO COMPLY PARIS KHNET 2012

K H N E T Brazil : banks must set aside 2% of net reserves for microcredit (Resoluçaò 3019 of the National Monetary Council ; aspects of the Caixa Economica Federal) China : Study underway on adapting CRA to promote and oversee rural lending and investments India : 40% of total bank loans to 14 development sectors (Priority Sector Lending regulations) see ( ) South Africa : Unspecified set-asides (Financial Services Charter within the Black Economic Empowerment Act of 2003) see ( ) DEVELOPPING COUNTRIES WITH SIMILAR LEGISLATION 10 PARIS KHNET 2012

K H N E T KENT HUDSON KHNET, INC. PROJECT MANAGER BANQUES ET TERRITOIRES THANK YOU 11