Bankers, regulators, and community activists rarely agree on anything. But at a meeting of the Federal Reserve Board's Consumer Advisory Council last week, there was broad support for a suggestion by Fed Governor Lawrence B. Lindsey to return to a five-tier system to rate compliance with the Community Reinvestment Act.
Since last year, regulators have used a four-tier system: "outstanding," "satisfactory," "needs improvement," and "substantial noncompliance." But four out of five institutions are rated "satisfactory," and many of them think they deserve a better grade.
Joining in the discussion were Deborah B. Goldberg, a reinvestment specialist at the Center for Community Change, a Washington consumer advocacy group; John R. Adams, vice president and compliance officer, CoreStates Financial Corp., Philadelphia; and council vice chairman Denny D, Dumler, senior vice president, Colorado National Bank of Denver.
Lawrence B. Lindsey: There has been some frustration by members of this committee, and by many bankers I've talked to, about the method of CRA grading.
Legislation requires us to have four grades. The result is that about 10% get the top grade and 80% get the second grade. The third and fourth grades are about 9% and 1% [of financial institutions.]
As an old professor, I would say that the problem is that B and C are grouped together. What do you think about going to five grades? Would that help? My personal bias is that it might.
Deborah B. Goldberg: I think you would find a lot of support from community groups for going back to a five-tier grading system.
The move from five to four grades was an effert on the part of some people in Congress to go to a pass-fail system, and that was as far as they could get.
The "satisfactory" group is much too large. It doesn't give the regulators an opportunity to distinguish between banks that are doing a satisfactory job and those that are doing a better-than-satisfactory job, even though they're not really outstanding.
John R. Adams: Putting it back to five categories would reduce some of the apprehension that community groups havel. It would show that "outstanding" is really outstanding, and that "satisfactory" is really not that far away from outstanding.
Today, those lines of distinction are almost obliterated, to the point that maybe somebody who's doing 99% of the job correctly finds out that 1% is enough to move them into the "needs improvement" category.
Lindsey: Could I suggest that the committee formally consider it and, if think it worthy, forward us a resolution? I think that would be a resolution the board would really entertain.
Denny D. Dumbler: We would really support that.... We're in the 80% of people who fall into that satisfactory category. And we don't think that's a fair reflection of what exists out there.