WASHINGTON - Bob Gnaizda, the Greenlining Institute's policy director, has found a way to make Community Reinvestment Act ratings more meaningful.

Community advocates everywhere have spent years pushing policymakers to refine CRA ratings, arguing that the 1977 law has been rendered nearly useless because 99% of all banks and thrifts with $250 million of assets or more hold a "satisfactory" rating or better. To further delineate lenders' performances, they have pushed for a fifth rating category, tougher exams, or more data from lenders.

Realizing those efforts were futile, Mr. Gnaizda set out to find a way to improve the system without changing it.

Sound impossible? You don't know Mr. Gnaizda, a relentless Yale Law School grad devoted to inner-city economic development.

"CRA grades will mean something," he said in an interview Thursday. "This will promote competition and be a readily available resource for foundations and pension funds as they decide where to put their resources and what companies they buy stock in."

In fact, Mr. Gnaizda took his work to California state treasurer Philip Angelides, who was impressed.

Mr. Angelides manages roughly $40 billion of short-term state and local deposits. Through his seat on the boards of the nation's largest public pension funds, the Public Employees' Retirement System and the State Teachers' Retirement System, he helps direct how another $280 billion is invested.

"This helps us spot the banks that are great players in community reinvestment," he said in an interview. "It helps us make judgments about where to put our resources."

Mr. Gnaizda and John Gamboa, Greenlining's executive director, met with top officials at the four federal banking and thrift agencies this week to explain the system, which was based on data provided by the regulators. "The reaction was surprisingly positive," Mr. Gnaizda said. "This creates a stick that they don't have to wield."

Compliance with the CRA is assessed in three areas: lending to, service of, and investment in low- and moderate-income communities. There are four ratings: outstanding, satisfactory, needs to improve, and substantial noncompliance.

Examiners split the satisfactory rating into high satisfactory or low satisfactory when grading the three areas. For instance, a bank may be judged an outstanding lender, but low satisfactory on service and investment, which would result in an overall rating of satisfactory.

Mr. Gnaizda's system - an A to F bell curve - assigns points to each rating, with outstanding earning the most points. Like CRA exams, the system gives extra weight to the lending test score.

A bank that earns three outstanding ratings would get an A. This helps differentiate among the best, because while 18% of large banks hold outstanding CRA ratings, only a few earn the top grade on all three tests, including CalFed in San Francisco and Sanwa Bank in Los Angeles. Bank of America got a B-plus for its one outstanding rating, while Chase Manhattan's two outstandings earned it an A-minus.

The high and low satisfactory ratings also are used to better distinguish CRA performance among the 81% of large banks with satisfactory ratings.

Steve Cross, director of the Federal Deposit Insurance Corp.'s compliance and consumer affairs division, suggested a variation on Greenlining's work. "We're definitely going to look into whether we could and should expand the amount of information" on our Web site, he said. "One thing we could do is to post the composite point total."

Examiners assign points for each test. Institutions earning 20 to 24 points get outstanding ratings. Satisfactory ratings go to banks piling up 11 to 19 points. Needs to improve is 5 to 10 points, and substantial noncompliance is 0 to 4 points.

If Mr. Cross's idea is adopted, a bank scoring 11 points on its CRA exam would be exposed as the cellar-dweller of the satisfactory category, while the bank earning 19 points would be motivated to work its way up to outstanding.

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