THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, October 9, 1994 TAG: 9410080191
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 108 lines
For bankers, the paperwork requirements of the Community Reinvestment Act have as much appeal as migraine headaches.
Many housing and community-development organizations, however, hold the 1977 law in high regard.
The act requiring banks to make credit available to low-income neighborhoods has become a powerful economic tool but isn't adequately enforced, advocacy groups contend.
The Community Reinvestment Act sprang from protests in the early 1970s that financial institutions were taking deposits from many inner-city neighborhoods but refusing to make loans in those areas.
For several years, few banks took much interest in the act. That changed in 1989 when Congress required more detailed reporting by banks and thrifts and ordered the results of their community-reinvestment exams to be made public.
Despite their different opinions, banks and community groups have tentatively endorsed efforts by federal regulators to streamline the community-reinvestment rules for financial institutions.
In late September, the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Federal Reserve jointly revised several community-reinvestment rules and allowed 45 days for public comment.
Simplifying the compliance procedures for banks and thrifts ``is one of the best ideas that the Clinton administration has had,'' said William R. Jaeger, vice president and compliance officer at CENIT Bank in Norfolk.
Allen Fishbein, general counsel for a Washington-based organization that advises community groups on community-reinvestment issues, offered a more restrained assessment.
While the new rules contain some unknowns, ``I can point to aspects of the regulations that are improvements,'' said Fishbein of the Center for Community Change.
The modifications by federal banking regulators call for:
Reducing the number of measurements for determining a bank's compliance from 12 to three.
Emphasizing the delivery of all financial services - not just loans - to underserved communities.
Requiring financial institutions to report the race, gender and geographic locations of their small-business borrowers.
For banks and thrifts, the stakes in any debate over community reinvestment are high. At a time of rapid consolidation among the financial institutions, regulators have not hesitated to block or delay mergers involving banks and thrifts with poor community-reinvestment records.
By law, regulators must take into account an institution's compliance with the Community Reinvestment Act when considering any application to merge or expand.
But both bankers and community advocacy groups have complained in recent years that regulators rely too heavily on the paperwork documenting community-reinvestment needs rather than on a bank's lending and investing efforts.
Last year, President Clinton responded by ordering federal regulators to streamline the Community Reinvestment Act.
During the late summer and early fall of 1993, regulators solicited ideas from hundreds of bankers and community groups at public hearings nationwide. But their proposals encountered intense opposition from banking groups when they were released last December.
A second package of rules, distributed for public comment Sept. 26, has been better received and will likely be adopted, said Bruce Hodge, vice president and community-reinvestment coordinator for First Union Corp., the Charlotte-based bank holding company.
``What we have here is fairly close to the final package,'' Hodge predicted.
The 45-day comment period is shorter than the 60 days or so that regulators typically allow for comment on rule changes, said Virginia Stafford, a spokeswoman for the American Bankers Association in Washington. ``That suggests they want to move as quickly as possible,'' she said.
Despite continued problems with its enforcement, the Community Reinvestment Act ``has made a tremendous difference'' for low-income communities, said Fishbein of the Center for Community Change. ``It has opened up an opportunity for the public to comment on local credit needs.''
The law also has enabled community groups to extract commitments for significant amounts of lending and investment by expansion-minded banks, including NationsBank and Bank of America.
Fishbein estimated that banks have promised in recent years to lend or invest more than $30 billion to underserved communities because of the Community Reinvestment Act.
NationsBank, one of the banks to endorse the proposed changes in community-reinvestment rules, said the revisions will make compliance tougher. However, the new rules will ``eliminate unnecessary and distracting documentation requirements,'' the Charlotte-based company said in a statement.
One concern that bankers and advocacy groups share is the latitude that bank examiners will be allowed under the latest proposals.
Bank regulators ``are providing examiners with much more discretion than they were planning to do last December,'' Fishbein said.
``In our minds, that raises a concern: What do (the regulatory agencies) plan to do to beef up the training of examiners?'' Fishbein asked. One flaw in the reinvestment act ``has been the lack of clear standards. Another problem was the lack of training.''
Some bankers have complained that a new requirement that they report on the race, gender and location of their small-business borrowers will add to their overhead. At the same time, they expressed relief that regulators scrapped a rule that would have measured the community-reinvestment performance of financial institutions by the proportion of loans they made in low-income neighborhoods.
Use of that indicator, they argued, might have prompted banks with a modest presence in a particular neighborhood to sacrifice their credit standards in hopes of generating additional loans. by CNB