The test of new Community Reinvestment Act rules will be how well bank examiners apply them.
To that end, representatives of the four bank and thrift regulators met Tuesday to design new CRA exams and develop a training schedule for examiners.
The bottom line for the 22 months spent reforming Community Reinvestment Act enforcement will be how well bank examiners apply the new rules.
Representatives of the four bank and thrift regulators met Tuesday to design new CRA exams and develop a training schedule.
While the rules had just been adopted April 19, regulators were hardly starting from scratch. In fact, draft guidelines already exist - the product of several months of work on the new CRA exams. The goal is to prod banks into proving CRA compliance with lending volume rather than stacks of paper.
"The new procedures strip out what is not performance-oriented," said Timothy R. Burniston, the Office of Thrift Supervision's deputy assistant director for policy.
Mr. Burniston is heading a Federal Financial Institutions Examination Council task force that is writing the new exams.
The new community reinvestment rules are intended to encourage lending in low-income and moderate-income neighborhoods. The rules focus on a bank's lending, investment, and service to its community.
In an interview, Mr. Burniston said he expects the new exams procedures to be completed by midsummer. Examiner training, he said, should begin in September.
Regulators are under some deadline pressure because they will start using the new exams Jan. 1 for banks with less than $250 million of assets.
But evaluating compliance under the new rules will be more complicated because regulators must develop four separate exams.
One will cover small banks, and another will apply to banks with more than $250 million of assets. Wholesale banks and institutions with a limited purpose, such as credit card banks, will get a third type of CRA exam. Finally, regulators must tailor CRA exams for banks that choose to design their own programs under the strategic plan option.
"We want to customize procedures as much as we can," Mr. Burniston said.
Right now, one CRA exam fits all banks.
In addition, the new exam procedures will be harder to write than the existing guidelines, Mr. Burniston said. The current rules focus on 12 measures that are relatively easy to lay out. The new rules are much less structured and, therefore, harder to explain, he said.
The training plan, he said, is to hold about five regional sessions, each lasting from three to five days. Compliance examiners from each agency will attend.
From there, the course is less certain. Some regulators claim joint sessions will be held regularly; others admit it's not realistic to expect the agencies to continue on such a united path. Bankers are concerned that, while training might start uniformly, it will inevitably fly apart.
"Over the long haul, it will be a challenge for the agencies," Mr. Burniston admitted.
The agencies also are trying to decide whether training should be done separately for small- and large-bank exams, according to another regulator who refused to be named. It also is possible that training for examinations under the strategic plan option might be put off because few banks are expected to choose that alternative right away, this regulator said.
Paul L. Sachtleben, director of compliance and consumer affairs at the Federal Deposit Insurance Corp., said creating new procedures for exams and training is a chance for the agencies to address a principal criticism of the current CRA rules: unfairness due to inconsistent enforcement.
Bankers and community groups are trying to get involved in the process.
"None of us ought to be in the dark about what's being planned and what's being proposed," said John Taylor, president of the National Community Reinvestment Coalition.
The Independent Bankers Association of America has written to all regulatory agencies asking for a look at the new exam process before it is adopted.
"Examination procedures must be carefully drawn to avoid creating any possibility of credit allocation because of conclusions drawn from the data by overzealous examiners," the IBAA letter said.
The agencies denied the trade group's request, but regulators expect to solicit advice informally.
In fact, Stephen M. Cross, deputy comptroller for compliance at the Office of the Comptroller of the Currency, said the new exams may be pilot- tested.
The agencies would use the new procedures in volunteer banks and gather comments from field examiners and bankers.