New York State's Banking Department on Wednesday proposed a radical overhaul of methods to enforce the Community Reinvestment Act.
The plan, expected to draw cheers and jeers from the banking industry, features a numerical formula to measure compliance with the law and new incentives for banks to achieve top CRA ratings.
The proposed regulations would apply to New York's 168 state-chartered banks, which include some of the largest banks in the country. But New York has an influence that goes beyond its borders, experts said.
On the Cutting Edge
The proposal "seems to be leading beyond what is now in place anywhere, at either the state or federal level," said Warren Traiger, a Manhattan lawyer specializing in CRA issues.
"This certainly does invite other folks to take this topic seriously," said the state's banking superintendent, Derrick D. Cephas, at a Manhattan press conference.
The Community Reinvestment Act, adopted in 1977, was designed to increase bank lending in lower-income neighborhoods. However, the law "has not fully lived up to its promise," Mr. Cephas wrote in a letter to bank chief executives on Wednesday.
The New York proposal, out for comment until Nov. 9, calls for:
* Numerical targets correlating a bank's CRA investments with its level of insured deposits. This partly responds to bankers' complaints that regulators' CRA ratings are vague and subjective.
* Enhanced CRA credit for banks that make equity investments in minority-owned banks or maintain branches or ATMs in low-income areas.
* Increased tie-ins between regulatory applications and CRA reviews. Exams are now required when banks apply to open or acquire branches or merge, but could be expanded to applications for new product lines, experts said.
* Exemption from application-tied CRA reviews for banks that achieve top ratings in three consecutive exams.
Mr. Traiger called the plan "a mixed bag for banks," They may welcome a more objective measurement scheme, he said, but will be wary about expanding the list of applications that require CRA reviews.
Mr. Cephas acknowledged that his proposal, which he hopes will become effective in early 1993, will have to be coordinated with federal regulators.