Regulators billed the new Community Reinvestment Act rules as pain relief for banks awash in paperwork, but bankers are saying the changes have caused some real headaches.
"The whole regulation was billed as new and improved and streamlined," said Gary Geisel, executive vice president of retail banking at Citizens Bank in Laurel, Md. "But we haven't seen any evidence of that."
Big banks complain about new small-business data-collection requirements. Midsize banks gripe about having to refocus their entire reinvestment efforts. And small banks worry about the reliance on loan-to- deposit ratios.
Regulators, however, contend the new rules are less burdensome and focus more on performance than on paperwork.
"The feedback we have gotten from banks has been overall very positive," said Bobbie Jean Norris, fair-lending chief at the Federal Deposit Insurance Corp. "The examiners are doing more work before they get there, and they are spending less time in the bank."
The four banking and thrift agencies approved revised CRA rules in April 1995, promising to replace a process-oriented system with one focused on performance. The agencies adopted a streamlined test for banks with less than $250 million of assets that focuses almost exclusively on lending. That took effect Jan. 1.
Bigger banks are judged on their lending, investment, and service to their community. That test takes effect in July 1997. But since Jan. 1 they have had to collect data on their small-business loans, and many are revamping their CRA programs in anticipation of the new rules.
The biggest banks are yelling the loudest. They argue that the regulators did not give them enough time to prepare for the new data- collection requirements, releasing many of the technical requirements needed to reprogram their computers in late December.
This meant that the large banks did not have their automated data- collection systems up and running by Jan. 1. So, many loan officers at these institutions are recording by hand the size of the loan, the location it was made, and the size of the business that received the credit.
"It is a pain," said William E. MacDonald 3d, chairman of National City Bank. "It is much more manual than we'd like."
The manual collection of data dramatically increases the likelihood that some loans won't be recorded and others will be entered inaccurately, bankers said.
"Unless you are living through it, you can't appreciate the effort it takes" to record all the data, said Catherine Bessant, senior vice president at NationsBank.
NationsBank alone has spent more than $1 million on training and computer reprogramming, Ms. Bessant said. Officials at two other large banks report spending similar sums.
Mr. MacDonald also questioned why his bank has to collect some small- business data. For example, he said his bank must record as a small- business loan minor extensions of credit to multibillion dollar corporations. "How stupid can you get," he said.
In addition to cost of gathering information, top officers at large banks said they worry about collection problems distorting the data. This could cause community activists to unfairly target banks who are serving small businesses, yet don't have the numbers to support their claims, they said.
Midsize banks also are having trouble, although they are complaining more about the additional work required by the new rules.
"This is not easier," said Tony Abbate, president of Interchange State Bank, a $490 million-asset institution in New Jersey. "I'm not talking about small-business data. I'm talking about the whole structure. You have all the components of the investment test and the service test and you have to refocus the entire organization on these tests. That has been the problem - we have to reorient everyone's thinking."
Nick Lozorak, compliance administrator at Harleysville National Bank and Trust in Pennsylvania, said the regulators are constantly changing what they want. For example, supervisors initially said banks would not get credit for allowing employees to work on community projects. But last month at a training seminar at the Federal Reserve Bank of Philadelphia, examiners said this so-called "sweat equity" would be credited.
Harleysville National, whih has $650 million in assets, also wasted time and money when it set up an automated data-collection system shortly after the rule was approved. It had to be scrapped after regulators decided to adopt new definitions for small-business loans that corresponded to those used on the call reports, he said.
Regulators also have told the bank that they want detailed analyses of the bank's lending, Mr. Lozorak said. That takes time to produce, he said.
"This has put additional burdens on the bank," he said. "They now expect us to do geocoding mapping and concentration ratios. They want statistics showing you are servicing your area. That's fine, but it takes a lot more time."
The situation isn't nearly as bad for small banks. The rules explicitly exempt banks with less than $250 million in assets from the data-collection requirements.
"I'm one of the positive experiences," said Thomas Sheehan, president of Grafton State Bank in Wisconsin. "I thought they did a very fine job."
But consultants and trade group officials said banks in communities with little loan demand are running into trouble. Examiners are criticizing these banks, saying they are not doing enough to meet the credit needs of their communities.
"The new rules are presenting a very difficult battle for those institutions, because it takes time and skill to literally go out and find borrowers in your community," said Lucy Griffin, president of Compliance Management Services of Arlington, Va.
Regulators said they can sympathize with some of the bankers' gripes. "There is still some confusion out there," said Malloy Harris, a national bank examiner with the Office of the Comptroller of the Currency. "Some is a result of misunderstandings, and hopefully some of those misunderstandings will be corrected by the release of a commentary and questions and answers where these issues will be dealt with." That commentary is due in late summer, he said.
The sweat-equity issue is a prime example of something the commentary should resolve, he said. The rules do not allow a bank to count efforts to rehabilitate housing or work with community groups unless the job relates to financial services. That means painting houses is out, but counseling families on getting a loan is in, he said.
Bankers shouldn't make the rules more difficult than they have to be, Mr. Malloy said. For example, banks do not have to collect detailed demographic information about their communities; examiners are doing that.
"I don't know what else we can do," he said. "We have said they are not required to do it and they are under no obligation to share the information they collect with examiners."
Regulators also said problems with data collection will work themselves out over time. They note that banks had similar difficulties during the first years of the Home Mortgage Disclosure Act.
