WASHINGTON --Community Reinvestment Act reform must include incentives for top performers -- such as less frequent exams and protection from protests -- bankers from 15 of the largest domestic banks have argued in comment letters.

"This is a serious shortcoming in the scheme of the plan," Bank of America executive vice president Donald A. Mullane wrote. "CRA performance could be greatly increased if based on positive, rather than negative, incentives."

Regulators must treat top-performing banks better in the application process, agreed Julius L. Loeser, senior vice president at First Interstate. Bancorp. Treating applicants the same eliminates any incentive to earn a top grade, Mr. Loeser said.

Examining banks with top scores less frequently would flee them to spend more time serving customers, argued PNC Bank Corp. senior vice president Eva T. Blum.

"It also would provide more time for regulatory agencies to give attention to institutions requiring more oversight," she added.

The largest domestic banks also objected to other aspects of the reform, which aims to highlight performance over paperwork.

Regulators, under a proposal released for comment in September, would use a three-pronged test, looking at lending, service, and investment.

Bankers from the largest banks overwhelmingly supported the new tests but proposed modifications in all three. Comments on the plan were due last week.

Regulators should adjust the lending test, which examines home mortgage and small business loans, to let institutions include parts of their consumer credit business, wrote First Union Corp. vice president Brace G. Hodge. As proposed, banks could either include all or none of theft consumer business.

The agencies also should change the service test, which examines how a bank operates in its community, in order to give credit to institutions that use mobile branches and other alternative delivery systems, NationsBank senior vice president Catherine P. Bessant wrote.

And regulators should expand the investment test, which would reward a bank for low-interest deposits, membership shares in a credit union, or grants that meet specific needs.

"Chemical believes that this definition is unduly restrictive," managing director Carol Pary wrote. She said other investments, including infrastructure improvements, should be added to the list.

Regulators also proposed a strategic plan option, which would let banks set their own CRA goals.

First Chicago president Leo F. Mullin wrote that regulators must rework the section to state explicitly that banks can use it as an alternative to the lending-service-investment tests.

"We, and many other banks, will be much more firmly committed to the plan option if it is clear that proactive goals, with significant community input and related data measurements, are an alternative to the standard requirement," he said.

Other bankers said a requirement that the public comment on strategic plans could make them too unwieldy.

"Given the lengthy process for getting a plan approved," Bank of America's Mr. Mullane wrote, "it may be difficult for an institution to amend, a plan to account for changed financial or other circumstances."

The bankers also attacked a provision requiring them to report race and gender data for small business and farm loans of less than$1 million.

The definition of what a bank must report is confusing, Chemical's Pary wrote. She said a business can meet the Small Business Administration's qualifications for a small enterprise but flunk CRA's.

"Chemical suggests that this discrepancy be eliminated and that there be one consistently applied use in the final regulation," Ms. Pary wrote.

The proposed data reporting requirement also would create reams of paperwork that would cost banks millions of dollars to process, Norwest Corp. general counsel Stanley S. Stroup wrote.

The agencies should remove the reporting requirements from CRA and attach them to Regulation B, which enforces the Equal Credit Opportunity Act, Mr. Mullane wrote.

"Under Reg B, both CRA-regulated institutions and other financial services providers would be subject to the new reporting requirements, which would be more effective and fair," he noted.

Despite these complaints, nearly every banker praised the plan's basic tenets.

"It is apparent that the agencies have devoted substantial effort to considering the comments to the December proposal, resulting in a vastly improved proposal," wrote senior vice president Pamela P. Flaherty of Citicorp's Citibank unit.

Ms. Flaherty and her counterparts at the other banks followed these statements of general support with scores of proposed changes. Some of the lesser changes include:

* Credit banks whose officers are active in the community, PNC's Ms. Blum wrote.

* Allow bankers, not examiners, to decide whether they want to report affiliate lending data, Norwest's Mr. Stroup wrote. "The choice should be left to banks so that those that choose to satisfy a portion of their CRA obligation through the activities of affiliates may do so."

* Put more emphasis on the community's need for credit products, rather than dictating that banks must provide home mortgages and small business loans, First Interstate's Mr. Loeser said.

* Save banks millions of dollars by eliminating the unnecessary requirement that they give the census tract location for each loan outside their service area, Chemicat's Ms. Pary wrote.

* Delay any change for a year, NationsBank's Ms. Bessant wrote. That extra time could cut compliance costs in half by allowing institutions to adapt to the new rules gradually, she said.

* Clarify that a wholesale bank making only a handful of consumer loans can still qualify for the streamlined test, wrote managing director Gary S. Hattem of Banker's Trust New York Corp.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.