The Federal Reserve is committed to promoting economic growth and stability in all communities. Through unique community development programs, the Fed addresses economic challenges faced by underserved, lower-income, and minority communities across the United States. These community development programs focus on job creation, small business development, equitable development, and housing.
The essay below highlights the Fed’s rich history of commitment to supporting lower-income communities. Through its research and partnerships with lenders, community organizations, and government agencies, the Fed has worked to create economic opportunities and improve the quality of life for individuals and families in underserved communities. It is republished with permission from Federal Reserve History.
The Federal Reserve’s community development function
The Federal Reserve’s Community Development (CD) function promotes economic growth and financial stability for low- and moderate-income (LMI) communities. The CD function was added to the Federal Reserve’s responsibilities following the passage of the Community Reinvestment Act (CRA) in 1977, with an initial focus of facilitating compliance of lenders with the Act. Today, Reserve Banks seek to catalyze progress toward economic objectives for underserved communities through a number of tools, including researching what works, sharing information, convening stakeholders, and connecting lenders with places in need.
In the early years of the CD function, Reserve Banks responded to requests by lenders to understand how to comply with the CRA and by community groups to understand how the statute could be used to effectively further the economic objectives of their communities. Reserve Banks provided educational and training services to each of these groups and helped facilitate connections.
Over time, banks and community groups acquired their own significant expertise with an understanding of the CRA, and community groups increasingly engaged directly with banks. Reserve Bank community development activities have evolved in tandem, taking on a wider range of approaches to promoting effective community development.
- The foreclosure crisis beginning in 2007 led to coordinated efforts across the Fed System to help stem the crisis in LMI communities. CD programs were a key source of information about the unfolding crisis. Research efforts included the Mortgage Outreach and Research Efforts (MORE) program and the study of the incidents and underlying causes of foreclosures and of policies designed to limit the spillover effects of abandoned and foreclosed properties. These efforts also involved outreach, including partnership with NeighborWorks America, public service announcements in movie theaters that warned of foreclosure-related scams, and local initiatives such as a foreclosure prevention workshop hosted by the Boston Fed and the New England Patriots Charitable Foundation at Gillette Stadium in 2008.
- Persistent unemployment after the 2007-2009 recession helped motivate a widespread focus across the Federal Reserve System on research and outreach related to workforce development and human capital. Over the past decade, myriad Fed-sponsored publications and convenings on these topics, often coordinated across Reserve Banks, have also highlighted the increased importance of applied research in community development.
- The COVID-19 pandemic also prompted a nationally coordinated response. Research efforts included a set of four surveys to understand how LMI communities and the entities that serve them were affected by the pandemic. The System also conducted outreach to advise and encourage participation of community development financial institutions and minority depository institutions in the Paycheck Protection Program Lending Facility and Main Street Lending Program.
The approach of the CD function within the Federal Reserve has evolved over time, in line with changes in the financial system and as Reserve Banks have embraced new approaches. The CD function initially focused on facilitating the compliance of lenders with the CRA and put emphasis on convening stakeholders and connecting lenders with community groups. Over time, Reserve Banks have also increasingly integrated applied research into their activities, sharing evidence-based information on successful community development opportunities and strategies to support innovation in financing efforts that expand local economic development in LMI communities.
 Melissa Wahl. “Banks target of merger protest: Supporters also weigh in at hearing.” Chicago Tribune, August 14, 1998.