What Is Regulation BB?
Regulation BB is a regulation that requires banks to provide certain information to the public. Regulation BB mandates that banks must disclose to the public which communities they will serve and the type of credit that they are willing to extend there. It also requires them to publish any comments they have about their Community Reinvestment Act (CRA) statement to the public.
Understanding Regulation BB
Regulation BB is simply the implementation of the CRA. This act encourages banks and lending institutions to extend credit to all segments of society, including the less creditworthy. Regulation BB, therefore, requires these entities to make public statements regarding their policies on this matter. Regulation BB further authorizes regulatory authorities to assess how effectively financial institutions have met the credit needs of all segments of the communities they serve, including low- and moderate-income neighborhoods. Financial institutions are expected to meet the needs of all segments of their communities in a manner consistent with sound operating decisions.
The CRA was passed in 1977 to address discriminatory lending practices that operated to the detriment of lower- and middle-income neighborhoods. This discriminatory practice was known as redlining and involved the denial of credit services to residents of specific neighborhoods, which areas were denoted on financial institutions’ demographic maps by the color red.
The denial of credit and other financial services, such as insurance or banking services, as well as the denial of other services like supermarkets or health care, was often racially motivated because the lower-income neighborhoods in question were typically those occupied by non-white residents. The areas most frequently affected by denial of credit and other services were inner-city neighborhoods occupied by blacks.
The passage of the CRA in 1977 sought to eliminate redlining, and other forms of credit rationing, or the limiting of the credit supply by lenders, even when borrowers are willing to assume higher interest rates. Reporter Bill Dedman won a Pulitzer Prize in the 1980s after publishing a series of articles that revealed that banks would often extend credit to lower-income white borrowers living in redlined areas, but not to black residents, even if their earnings placed them in the middle- or upper-income brackets. The CRA was also intended to encourage investment in lower-income neighborhoods, to ameliorate the deterioration of those neighborhoods.
Redlining has persisted despite the passage of the CRA and the implementation of Regulation BB, especially the practice of reverse redlining, which involves charging low- and middle-income and minority borrowers more for financial products and services than members of other demographic groups. This practice is believed to have contributed to the sub-prime mortgage crisis and is considered a form of predatory lending.