revamped their instructions to examiners evaluating banks under the revised Community Reinvestment Act rules. The new guidelines, unveiled on Monday, order examiners to conduct their reviews in the least obtrusive manner possible. "The examination procedures reflect the intent of the regulation, which is to have complete and accurate performance-based exams consistent with the least amount of burden on institutions as possible," said Matthew Roberts, director of the consumer and community law division at the Office of the Comptroller of the Currency. Bankers had criticized an earlier draft of the guidelines, saying it failed to ease the burden. Industry officials, while praising several of the changes, still weren't completely satisfied. "They look like they will reduce the burden from the current exams," said Karen Thomas, director of regulatory affairs at the Independent Bankers Association of America. "But they still raise a lot of questions because it is obvious that examiners are going to have to exercise a lot of judgment, and you don't know how they are going to exercise it." Steven Zeisel, senior counsel at the Consumer Bankers Association, agreed that the revised guidelines are a major step forward. But he said regulators have failed to provide definitions for scores of terms, such as "innovative," "significant," and "common sense." "There are a lot of unanswered questions still," he said. Regulators revised their CRA rules in April, shifting from a process- based to a performance-oriented test. Streamlined exams for small banks and requirements for large-bank data collection take effect Jan. 1; the rest of the rules kick in 18 months later. Banks will be judged under one of four tests: large bank, small bank, wholesale/limited-purpose bank, and strategic-plan option. An eight-page introduction was added to the guidelines that instructs examiners to use the information banks already have rather than asking institutions to generate new data. It also discourages examiners from reevaluating a bank's service area if it hasn't changed since the last exam. Regulators did most of their tweaking to the small-bank guidelines. They added a section telling examiners to look at lending activity and prior CRA performance when deciding on assessment areas to review. Also, examiners must review at least one assessment area in each state where the bank has a branch. Finally, the agencies clarified when an examiner can redefine a bank's assessment area, the source of the largest number of industry complaints. Bankers claimed they would need to collect reams of information to defend their decision to serve one community over another. An examiner may question an assessment area only if a bank excludes communities where it has branches or ATMs. However, examiners will be barred from downgrading a bank for inaccurately defining its assessment area. The agencies made semantic changes as well. For the performance context - the section that explains how examiners should learn about the bank's community - regulators flipped around several sentences to emphasize that examiners should review existing data before compiling new information. The large-bank guidelines drew mixed reviews. Catherine Bessant, a senior vice president at NationsBank Corp., said the instructions are so complex that she isn't sure how the regulators will be able to consistently apply them. Also, she said she doubts community groups or bankers will understand why one bank received a "satisfactory" and another an "outstanding" rating. The guidelines include 12 pages of instructions explaining how examiners will arrive at the rating. These include requirements to analyze the geographic distribution of the bank's loans; the share of loans in low- income areas; the innovativeness and quantity of investments in the community; and the availability of services to all income groups. Examiners then summarize this work, evaluate demographic and economic conditions, and award points depending upon the significance of the bank's lending, service, and investment. They add these points to determine the final grade. Ms. Bessant, while supporting the new guidelines, said regulators "haven't gone far enough to determine what the different ratings mean." Observers were disappointed with the wholesale/limited purpose and strategic plan guidelines. Richard Whiting, general counsel at the Bankers Roundtable, said the guidelines require examiners to get comment from community groups about banks using the strategic plan option, essentially giving activists another crack at the bank. "This would be a process that never ends," he complained. Warren Traiger, a New York lawyer, said the wholesale bank rules don't provide any guidance on who qualifies for the special test. "This is how banks will be examined," he said. "The first question has to be who will be examined." Kenneth Thomas, who wrote a book on CRA, said the quality of the guidelines will not be known until banks are examined under them. "If they give everyone a satisfactory, it won't work," he said.

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