With the passage of the Community Reinvestment Act (CRA) in 1977 by the Congress of the United States, regulated financial institutions have become responsible for delineating their effective market areas in light of legislative guidelines. One significant result of this effort was that regulators and bankers, unfamiliar with the intricacies of geographic analysis, were performing and reporting on geographic research. Often these approaches were inadequate because of the tools available to the bankers/regulators (usually no more than push pins and paper maps).
Geographic Information Systems (GIS) technologies have sufficiently evolved during the past five to seven years enabling increasingly sophisticated spatial analysis and yielding new understanding about the effectiveness of currently employed methodologies under CRA. Analysis of approximately one million customer accounts at over 100 bank locations in five states revealed that banking institutions have differential market areas depending upon the banking activity being examined. Consumer travel patterns indicate that market areas for deposit activities are significantly smaller than market areas for loan activities. These phenomena go unaddressed under current and proposed CRA guidelines.
Indeed current guidelines unfairly burden banks for the purposes of defining and reporting lending activity by their failure to address these issues. GIS can solve this dilemma and help to accomplish the proposed intent of CRA. This application will then yield significant benefits to the banking industry regarding market analysis and optimization. Consequently, banks can turn CRA compliance efforts into an effective market strategy framework.
John May
Carter & Burgess
P.O. Box 985006
Fort Worth, TX 76185-5006
Telephone: 817-735-6267
Fax: 817-735-6186