WASHINGTON - Grade inflation in Community Reinvestment Act ratings has become a common criticism, but one regulatory agency, the Federal Deposit Insurance Corp., has become much stingier with its highest score in recent years.
In 1998 the FDIC awarded an "outstanding" CRA rating to nearly a quarter of the banks it examined - a higher percentage than any of the three other banking agencies.
By 2002 only 3.8% of FDIC-examined banks received the highest CRA grade, a smaller percentage than the Federal Reserve Board, the Office of Comptroller of the Currency, or the Office of Thrift Supervision.
Not all ratings from 2003 exams have been made public, but so far the FDIC has again awarded the lowest percentage of "outstanding" ratings - 6%.
The FDIC, which administers more CRA examinations than any other agency, declined to discuss the shift.
Community advocates have long contended that the agencies hand out too many "outstanding" CRA grades, and claim bankers also are concerned.
"The very best banks were complaining. What was the value of sending out a press release saying you got an 'outstanding' when the bad bank down the street got the same rating?" said Bob Gnaizda, the general counsel at the Greenlining Institute.
James Ballentine, the director of community economic development at the American Bankers Association, said it is more and more challenging to impress CRA examiners.
"A bank could start a successful financial literacy program in 2002, but when the examiner comes in 2004, that's not a new idea to the regulator," he said. "New ideas in the CRA world don't just pop out of thin air; it takes time to develop."
However, some banks are satisfied with a "satisfactory" rating because they think being rated "outstanding" and then losing that rating could draw criticism.
"You can only … go down" from "outstanding," and many banks think doing so could attract community groups and activists who might oppose a merger, said Jim Feeney, an associate at Milestone Advisors, a Short Hills, N.J., firm that helps banks and thrifts find CRA-qualified investments.
The banks involved in high-profile deals typically do not fall under the FDIC's authority. They are mainly examined by the OCC, whose percentage of "outstanding" ratings has crept into the double digits since 2000.
Kenneth H. Thomas, who has written two books on the CRA, said the FDIC is still giving out way too few of the lower ratings that can spur changes in community reinvestment policy.
In 2002, 1.5% of banks rated by FDIC received a "needs improvement" or "substantial noncompliance" grade.
"You can live with a B, but you can't live with a D or an F," Mr. Thomas said.
The number of CRA exams conducted has fallen dramatically in recent years. It peaked at 3,656 in 1999, when the Gramm-Leach-Bliley Act passed. That is 44.6% more than were conducted in 2002, the last year for which complete data are available.
The 1999 law extended the period between CRA exams to five years for banks and thrifts with less than $250 million of assets that earned an "outstanding" rating in their last exam. Small institutions with "satisfactory" ratings are subject to CRA exams every four years.
