The Role of the Public Sector in Local Development Finance: Evaluating Alternative Institutional Arrangements

Such recent laws as the Community Reinvestment Act (CRA) and the Home Mortgage Disclosure Act (HMDA) attempted to make private banks consider their responsibility to provide credit in accordance with community needs. However, such an extension of community rights has 2 major limitations: 1. the definition of community need is subject to interpretation by federal regulatory authorities, and 2. communities may have to pressure federal authorities into assuring that their credit needs are met. The collective action required by such legislation may be too costly, and the community may never reach its own definition of its credit needs. Still, such legislation constitutes an important step in progressive institutional change, reflecting the concept that the corporation exists for certain public purposes beyond maximization of shareholder wealth. In the future, change is more likely to be effected through public ownership than through the regulatory process.