California legislation to link the state's banking business to institutions with top-notch Community Reinvestment Act ratings is raising bankers' hackles.

The bill, which the Assembly Banking and Finance Committee is scheduled to vote on Monday, would require the Golden State to give preference to banks with outstanding CRA ratings when making deposits and doing other state banking business.

"We will be opposed to the bill as amended," said Gregory O. Wilhelm, director of government relations for the California Bankers Association. "It's not going to increase CRA activity. It's going to be a problem for banks of all sizes. It creates new penalties for CRA that were never contemplated by [the federal law]. And it is going to reduce the number of bidders for public agency business, giving the government fewer options for service."

The legislation initially would have prevented California from doing business with banks that do not rate "high satisfactory" in all three of the CRA categories - lending, investment, and services. The industry, especially small bankers, cried out, sa.ying such a measure would make institutions with less than $250 million of assets ineligible for state business because their overall CRA scores are not broken down into the three categories. The bill has been changed so that banks of all sizes would be judged on their overall CRA ratings.

The CRA ratings would only come into consideration after important fiduciary factors like deposit yields are determined, committee staff said.

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