WASHINGTON -- The Federal Reserve has Unanimously approved a merger application by a North Carolina lender, despite allegations by another banking agency that the institution discriminated against minorities.
Last year, the Federal Deposit Insurance Corp. said it detected three instances of lending discrimination in a routine examination of BB&T Financial Corp. of Wilson, N.C.
The Fed reviewed these findings and decided earlier this week that an application to merge the company's lead bank with three thrills should be allowed anyway.
The Fed's decision came after vigorous complaints from the bank that the FDIC's allegations were unfounded. Examiners were poorly trained and ill-equipped to carry out new fairlending procedures that had just been put into
place by the agency, bank officials said.
The Fed action followed a related approval of the deal earlier this year by the FDIC. The FDIC approval also occurred after its examiners made the bias charges.
Policy Struggle
The approvals come as the agencies arc struggling to develop a consistent policy on how to proceed when they find isolated instances of discrimination. As they refine their techniques for detecting bias - often relying on computerized statistical analyses - they are increasingly able to pinpoint specific loan applications where they believe racial bias occurred.
None of the agencies has announced a formal policy detailing how it will proceed with these cases, either in routine exams or in corporate applications. The Fed and FDIC approvals of the BB&T bid, though, suggest the problem will not stand in the way of an acquisition bid.
Boon to Industry Seen The approvals come as good news for the industry. Bankers want the agencies to focus on egregious instances of widespread bias, rather than holding them to a standard of zero tolerance, as some community groups have suggested.
"That's an impossible standard," said Diane Casey, executive director of the Independent Bankers Association of America. She called the approvals "a prudent course of action." But public advocates disagree. "It sends exactly the wrong message for the agencies to be approving applications for institutions that are violating fairlending laws," said Deepak Bhargava, legislative director for the Association of Community Organizations for Reform Now, or Acorn. "I don't think of three or four or five cases as being at all insignificant."
Multiyear Moratorium Sought
Mr. Bhargava wants bank regulators to place a multiyear moratorium on corporate applications from lenders that violate anti-discrimination laws, regardless of how widespread the problem is.
"Unless lenders believe that their business plans can be imperiled by discrimination, they're not likely to do anything about it," he said.
BB&T is the fourth-largest bank holding company in North Carolina, controlling deposits of $5.8 billion. The Fed and FDIC approvals will allow it to merge its lead bank with three thrifts: Citizens Savings Bank of Newton, Mutual Savings Bank of Rockingham County, and Citizens Savings Bank of Mooresville.
Examiner Blamed
In April 1993, the FDIC gave Branch Banking and Trust Company of North Carolina a "satisfactory" rating, but also said it had found substantive but isolated instances of discrimination involving three of the bank's minority loan applicants.
Bank officials strongly protested the allegations and said they resulted from examiner incompetence.
"The FDIC came to examine us right after the new [fair-lending] procedures for all examiners came out," said Scott Reed, senior executive vice president of the company. "The examiners themselves admitted to us that they were not very well trained at that point - that it was new to them, we were one of the first."
Both Fed and FDIC officials refused to comment on the case.
According to Mr. Reed, FDIC examiners singled out at least a half dozen minority applications where they suspected racial bias factored into the bank's decision.
Allegations Dropped
But after a lengthy debate with bank officials about the first three applications, examiners dropped the remaining ones from consideration.
Even the initial three "are very subjective in our opinion and not just even marginal; they're ridiculous," Mr. Reed said. "It's been a ridiculous process, and very punitive and time consuming."
Since the exam, BB&T has put into effect a number of fair-lending programs, including an expanded second-look initiative and a new training system.
Prior to Fed approval of the merger, BB&T Chairman John Allison met with Federal Reserve governor Lawrence B. Lindsey to discuss the exam, Mr. Reed said.
"I think the Fed's 4-0 vote speaks to the fact that they found no problems," he said.
