Fed criticizes Clinton plan on overhaul of the CRA.

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WASHINGTON - The Federal Reserve Board on Friday sharply criticized the Clinton administration's proposal for overhauling the Community Reinvestment Act and suggested it might reject the plan if the banking industry strongly opposes it.

The board voted 6-1 to seek public comment on the proposal, which would require banks with more than $250 million of assets to meet tougher standards for local lending and submit data on more kinds of loans.

|Into the Fireplace'

But the Fed expressed willingness to scrap the plan if the industry reacts unfavorably.

"I am perfectly willing to tear it up, throw it into the fireplace, and go back and start again," said Fed Governor Lawrence B. Lindsey, who represented the central bank during negotiations on the plan with the administration and the other banking agencies. "In round 2, 1 hope we can do better."

The govemors criticized almost every important aspect of the plan, foreshadowing complaints that are certain to come from some lawmakers and bankers.

Governor John P. LaWare said that the regulators are going beyond the law's intent to encourage bank lending in poor areas. "By adopting this proposal, we are substantially amending the CRA to substitute the word |bludgeon' for |encourage,'" said Mr. Laware.

"We are not only contemplating credit allocation, we are contemplating resource allocation," he added. "This is a fundamental public policy mistake, and I am hopeful we can get uninhibited public comment on it."

Governor Wayne D. Angell voted against even putting the plan out for comment, saying, "this approach is wrong and the time to say no is now.

"We don't have a simple credit allocation scheme," he added. "This is worse."

Points of Contention

In particular, the Fed expressed concern that:

* It may not have legal authority to implement the plan.

* Some provisions may conflict with safety and soundness standards.

* The new rules may prove very costly for banks. Some governors suggested the cost of gathering data alone could rival the cost of complying with the Home Mortgage Disclosure Act.

* The regulatory agencies, which developed the plan at the behest of President Clinton, did not have enough time to deal with its complexities. "This proposal is not in the technical shape the board generally demands," said Griffith L. Garwood, director of the Fed's division of consumer and community affairs.

Mr. Lindsey warned that the proposal "may be the most far reaching change in bank regulation outside of the safety and soundness area that has ever come before the board."

Fed chairman Alan Greenspan was more reserved. "We are in a whole new field here and it is going to require some real thought," he said.

The Fed's approval will enable the four banking agencies to publish the proposed rule jointly. The Fed battled administration officials on important elements throughout its five months of drafting.

Sources say that the Fed was instrumental in toning down many of the plan's quantitative standards, limiting new data requirements and lightening new enforcement actions.

60-Day Comment Period

With all four banking agencies approving the proposal, it will now be published in the Federal Register. The public will have 60 days to comment on the plan. Comptroller of the Currency Eugene A. Ludwig said he hopes a final rule will be released by June.

The proposal calls for data collection by big banks to start in July. The full plan would be in place by July 1995

The Fed's vocal dispute of the rules Friday also highlights the growing tension between the Clinton administration and the Fed, after a post-election honeymoon.

But cooperation has dissipated in recent weeks. Not only has the board grown vocal in its dissatisfaction with the direction the CRA reform has taken. but it also has gone public with its anger about the administration's proposal to consolidate the banking agencies. That move would strip the Fed of its regulatory powers.

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