Bill McCollum has been for quite some time a bright light on the House Banking Committee. He has recently proposed two initiatives that deserve a great deal of attention from the banking industry.
The first is a significant reform of the Community Reinvestment Act and the Equal Credit Opportunity Act.
The regulators, in Rep. McCollum's view, have gone far beyond the CRA's intended purpose of proscribing redlining. They have imposed lending quotas and created significant reporting burdens. They have allowed community activists to use protests of bank expansion applications to force banks to commit funds to projects favored by the protesting groups.
Rep. McCollum would turn the CRA into a disclosure law. Depository institutions would be required to make available to the public a written description of their efforts to enhance the availability of credit in their communities. The regulators' authority would be confined to ensuring the accuracy of the disclosures.
Rep. McCollum opposes redlining, which occurs when a financial institution refuses to make loans in certain neighborhoods due to their racial or ethnic makeup. He would address that issue by adding redlining to the list of prohibited activities under the Equal Credit Opportunity and Fair Housing Acts.
The Equal Credit Opportunity Act has subjected banks to yet another regulator, the Department of Justice. Rep. McCollum's bill would limit the attorney general's authority to bring cases to when there is a referral from the bank's primary regulator.
Finally, the regulators and the Justice Department have been inappropriately using a statistical technique called "regression analysis" to show lending discrimination. Rep. McCollum would confine the use of statistical analysis to those cases in which there is evidence of intentional discrimination.
Banks are less likely to applaud Rep. McCollum's second initiative. It is his proposal to resolve the looming insurance premium disparity between banks and thrifts, which would:
*Spread across all banks and thrifts the cost of servicing the Finance Corp. bonds issued by the old Federal Savings and Loan Insurance Corp.
*Make the Resolution Trust Corp.'s funds available to cover all losses on thrift failures until the Savings Association Insurance Fund is recapitalized.
*Require thrifts to recapitalize the thrift fund and, once that is completed, merge it with the Bank Insurance Fund.
*Merge the Office of Thrift Supervision and the Office of the Comptroller of the Currency.
*Provide that banks are entitled to receive a full refund of both their premiums and the interest earned by the bank fund, so long as the fund stands at 1.25% of insured deposits.
*Create a unified charter for banks and thrifts.
Helping to service the Fico bonds would cost banks about $600 million a year. The annual interest earned by the Bank Insurance Fund in the near term should approximate $1 billion. As long as the fund remains at 1.25%, net premiums due it from banks, under Rep. McCollum's rebate approach, should be relatively modest. If the mandated level for the Bank Insurance Fund were allowed to decline to 1% or so, the McCollum proposal might be quite workable.
A glaring weak spot in the proposal is that it doesn't spell out the terms of the unified charter banks and thrifts would receive. It calls for the Treasury Department to study the subject for a year.
My hunch is that banks will want the terms of the unified charter established before they sign on the dotted line. If the charter is sufficiently attractive, a deal may be possible.
Rep. McCollum's first initiative would reduce materially the regulatory burdens imposed on banks and eliminate most of the anger and antagonism bankers feel toward the CRA and the Equal Credit Opportunity Act.
His second initiative is on the right track toward resolving the very thorny insurance fund issue. The cost of deposit insurance could be acceptable to banks under Rep. McCollum's rebate system, particularly if the arbitrary level mandated for the Bank Insurance Fund were reduced to 1%. If the unified charter enhances the competitive position of banks, the package could be very attractive indeed.
Mr. Isaac, a former chairman of the Federal Deposit Insurance Corp., is chairman and chief executive officer of Secura Group, a financial services consulting firm based in Washington.