WASHINGTON -- Top federal banking regulators on Thursday questioned the effectiveness of the new reporting requirements that they themselves proposed in an effort to overhaul the Community Reinvestment Act.
Federal Reserve Board Governor John P. LaWare told a House Banking subcommittee that it is "highly unlikely" that ethnic and gender data collected under the revised proposal could be used to establish discrimination.
Such data would "provide no insights into the fundamentals that underlie the loan decision," he said.
"Inevitably, the fairness of a bank's lending decision must be addressed on a loan-by-loan basis and in light of information in the loan files and the bank's lending policies," he said.
He went on to say that evaluations of loan denials based on written applications may be misleading because businesses often do not file a loan application until it becomes clear during negotiations with a lender that the loan will be approved.
Jonathan Fiechter, acting director of the Office of Thrift Supervision, said "it would appear to make sense" to require all creditors covered by fair-lending laws to submit race- and gender-specific data as part of CRA reform.
He also said that the proposed race and gender dam collection would reverse the Federal Reserve's Regulation B, which prohibits gathering that kind of information except in the case of residential real estate credit applications. Mr. Fiechter questioned whether reversing Reg B was "consistent with congressional intent."
Rep. Bill McCollum, R-Fla., wondered whether requiring banks to collect race and gender data would increase the number of "questionable loans" made.
Mr. LaWare said it just might.
"In order to seek a favorable grade, credit standards may be compromised," Mr. LaWare said. "There is some indication that that has been going on. Smaller banks are saying, 'To comply in our community, there just aren't that many who qualify [for loans].' They feel forced . . . to make loans that are not good loans."
The hearing was called in pan to discuss the Small Business Lending Disclosure Act, a measure that would require banks to reveal loan approval rates for small businesses and farms. Unlike the proposed CRA reform, the bill, sponsored by Rep. Albert Wynn, D-Md., would extend the reporting requirements to small banks.
The CRA proposal exempted small banks to ease the regulatory burdens that accompany the disclosure requirements.
"In general, the cost of reporting is disproportionately higher for a small institution," Mr. Fiechter said.
