A new plan designed to establish a blueprint for ensuring that banks invest in their communities is expected to be approved for publication for comment by banking regulators Sept. 26.
Sources familiar with the proposal say it win require that evaluation of CRA performance be based at least 50% on the amount of loans that an institution makes in its community, the geographic distribution of those loans and to whom the loans are made.
But the key difference between the prior proposal - which hit heavy opposition and sent regulators back to the drawing board - and the new plan is that it moves away from formulas and ratios, as well as presumptive results with opportunity for rebuttal.
Rather, the emphasis will be on assessment criteria and a "profile approach" for each test. The result, according to several people who have been briefed on the outline, will resemble existing assessment factors.
"It increases subjectivity by examiners who will be looking at hard data but will not be using formulas," a source said. "It gives more responsibility to the regulatory agencies."
The market share analysis involve in the core tests will be only one of several ways of measuring a bank, lending record. Borrower distribution that looks at loans to low- and moderate-income individuals and businesses will be another component.
The new assessment system will look at small business/farm loans by loan size as well as business size. Other components of the assessment system will include the innovation and flexibility shown by an institution in in its community outreach, such as second-look programs, community homebuyer offerings and government programs Community development lending will be another factor evaluated.
The community investment test very few changes from the first proposal, according to these sources. service test will look at branches ATMs, range of service, branch opening and closing records, alternatively delivery systems and community development services.
The proposal is expected to re-ignite the conflict between community groups, that think the proposed regulation is soft in favor of the banks, an bankers, who have charged that prior proposals smack of credit allocation and mandate expensive bookkeeping.
In trying to learn from the mistakes that sunk the first attempt, Comptroller of the Currency Eugene A. Ludwig is seeking to create a groundswell of public support for the plan by briefing municipal officials and community leaders nationwide on what the regulators are attempting. He is also briefing members of Congress, their staffers, bankers and trade association officials on the plan, some of whom wrote a comment letter or expressed interest in the proposal. Ludwig "didn't want people to get blind sided so he has talked about the general outline of the proposal [to these people]," said one source. In fact, it was reported to Mortgage Marketplace that Los Angeles Mayor Richard Riordan got a briefing from Ludwig during a visit to Washington.
"All indications are that the OCC is building a consensus for CRA," said Ned Brown, managing partner of Financial Modeling Concepts of New York. "I sense in talking to leaders in the House and Senate Banking Committees and their staffs that they feel comfortable about [the new proposal]."
The proposal is scheduled to be released Monday Sept. 26, after the FDIC and the Federal Reserve Board meetings. It is expected to have a short comment period with a final rule optimistically expected by the end of the year. "Getting it right is the goal. Incorporating comments will not be rushed," said another source. Even if the proposal is finally the first of the year, first data, reportedly would not be collected until mid-1995, and not used until 1996.
Overall, sources say the new regulation gives both bankers and community groups some of what each wanted. "It increases subjectivity by examiners who will be looking at hard data but will not be using formulas," the source said. "It gives more responsibility to the regulatory agencies."
Weighting has been changed to more closely accommodate community groups, concerns. The three tests put extra emphasis on lending and no institution could receive a satisfactory overall rating without getting a satisfactory rating on its lending portion.