WASHINGTON - Industry representatives cheered a proposal that would let national banks keep profits generated from community development investments.
National banks must now reinvest these profits in other public welfare projects. The Office of the Comptroller of the Currency has proposed dropping the reinvestment requirement, saying that it may reduce banks' operating income.
The requirement also may discourage banks from investing in community development projects, according to the agency. A final rule is expected by Jan. 1.
Responding to the proposal, which was published in the Federal Register Oct. 26, bankers argued that the existing reinvestment rule is unnecessary.
"A regulation designed to force bankers to reinvest profits is redundant and counterproductive," wrote Judith Knight, director of the American Bankers Association's Center for Community Development. "Banks interested in making a difference in their communities will want to ensure the success of their community development activities."
As of Nov. 30, national banks had more than $344 million invested in public welfare projects, the OCC said.
The reinvestment rule was created to ensure that national banks investing in community development projects are acting in the public interest - not simply speculating on low-income real estate.
"The reinvestment requirement may have the unintended effect of discouraging banks ... from striving to find ways to make (community development) investments achieve profitability," said James A. Pihera, senior vice president at NationsBank.
However, the California Coalition for Rural Housing criticized the proposal. The group argued that retaining the reinvestment requirement is especially important in the face of banking industry consolidation.
"There is some evidence that these mergers mean less local involvement in and charitable giving to community development efforts," said Carol Ornelas, chairwoman of the coalition.
