Federal Reserve Board Chairman Alan Greenspan warned this week that the House financial reform bill would impose extra community lending restrictions on banks entering new businesses.
The Fed chairman did not say whether the bill adopted by the House Banking Committee would be onerous or that he preferred the Senate Banking Committee's alternative. But Sen. Phil Gramm seized on the remarks Thursday for support in his war against Democrats over the Community Reinvestment Act.
"Contrary to some assertions that the House Banking bill is neutral about CRA, Chairman Greenspan finds that the House version would significantly expand CRA mandates beyond current law," said Sen. Gramm, chairman of the Banking Committee. "Such expansions are not warranted in legislation that is aimed at improving consumers' access to financial services. We should be removing barriers, not building new ones."
Sen. Gramm had asked the Fed to analyze the CRA impact of the reform bills the House and Senate Banking committees separately approved in March. The Texas Republican on Thursday released the agency's three-page analysis and an cover letter, dated Wednesday, from Mr. Greenspan.
The Fed noted that the House Banking version would require bank holding companies to have a "satisfactory" or better CRA rating to buy a securities or insurance firm, whereas CRA performance now pertains only to merger or branch applications. Enforcement powers would be widened beyond denying applications, to include criminal sanctions and forced divestiture. The bill also would extend CRA to federally chartered, uninsured wholesale financial institutions created in the bill.
"Currently, the CRA does not require that an institution's CRA record be considered in connection with proposals to engage in nonbanking activities, authorize enforcement of the act outside the applications process, or apply to uninsured depository institutions," Mr. Greenspan wrote.
The Fed chairman added that the Senate Banking version does not contain similar provisions but would roll back CRA for small, rural banks. More than 3,800 financial institutions-or 37% of all insured banks and thrifts but holding less than 3% of industry assets-would be exempted, according to the Fed.
Consumer advocates said that Mr. Greenspan supports CRA and that his latest remarks should not be viewed as an attack on the federal law. However, they wished he had taken advantage of the opportunity to defend the law.
"It doesn't hurt the cause," said John Taylor, president of the National Community Reinvestment Coalition, but "neutrality or silence at this point is not helpful. I know, based on personal conversations with the chairman, that he thinks CRA is a good and effective law and supports its goals. Why he wouldn't make that clear to Sen. Gramm is disappointing."
