WASHINGTON - The Greenlining Coalition this week demanded that the banking agencies drastically overhaul the Community Reinvestment Act's rating system.
The San Francisco-based consumer advocacy group is promoting legislation that would replace the current four grades with a six-tier rating system.
Banks would be evaluated on a curve with just 45% of the industry allowed to score an average or above rating. The breakdown would be: exceptional, limited to no more than 5% of banks; outstanding, limited to 10%; high satisfactory, limited to 30%; satisfactory; needs to improve; and noncompliance.
The Greenlining Coalition made its pitch in a letter to the banking agencies on Wednesday. The group, which represents community activists and minority advocates, said inflated CRA grades are taking the teeth out of the reinvestment law.
"Your government stamp of approval on mediocrity debases the entire grading system," the letter states.
The Greenlining Coalition cited a study by CRA/HMDA Update, a Bethesda, Md., newsletter, that found 94% of banks examined in 1994 scored either an outstanding or satisfactory rating. In the second half of last year, it said, only five of 2,262 banks got failing grades, boosting the success rate to 99.8%.
"Imagine a university with no admission standards that routinely graduates 99.8% of its freshman class," wrote George Dean, chief executive of the Phoenix Urban League, a member of the coalition.
Sent to the Comptroller of the Currency's office, the Federal Deposit Insurance Corp., and Federal Reserve Board, the letter noted that a bill introduced this month would give almost all banks seeking mergers a reprieve from public protest under CRA.
That bill, introduced by Rep. Bill McCollum, R-Fla., gives a safe harbor to all banks with a satisfactory or better rating. Those top-rated banks could not have an application held up by CRA complaints.
"There are now only two categories for all purposes: outstanding and satisfactory," Robert Gnaizda, general counsel of the Greenlining Coalition, said in an interview.
As it is now, Mr. Gnaizda said, the whole rating system is a safe harbor. "Don't grade until you have a performance-based system," he advised.
Such a system would reward the best banks, Mr. Gnaizda said. The current formula, he said, hurts the progress of banks such as Bank of America, that have worked hard to get outstanding ratings.
"Banks that are really outstanding are infuriated," Mr. Gnaizda said.
The agencies also should ignore or take lightly CRA ratings when considering bank expansion plans until the grades are more performance based, the letter said.
In fact, bank powers "should not be expanded to compete with investment houses and insurance companies" until public hearings are held on the current rating system, according to the letter.
The Greenlining Coalition asked for a response from the agencies within 20 days.
