To speed processing of merger applications, the Federal Reserve should distinguish between serious and marginal Community Reinvestment Act protests, the central bank's inspector general said.

Inspector General Brent Bowen said in a recent report that he found that many CRA protests are minor, not warranting consideration by the Fed board. The Fed should let its 12 reserve banks handle these applications, Mr. Bowen said.

The Fed should let the reserve banks handle applications involving banks with outstanding CRA ratings, protests that raise issues the Fed already has dealt with, complaints based on individual consumer-related issues, and objections without any supporting evidence, he said.

Community activists opposed the idea, saying it would hurt efforts to protect neighborhoods from bank mergers.

"We would have serious concerns about leaving this up to delegated authority," said Allen J. Fishbein, general counsel at the Center for Community Change. "Regulatory bureaucrats would be deciding important issues of public policy. Those kinds of shots should be decided at the board level."

He said the reserve banks are run by the commercial banks in the district, raising questions about how objective the staff could be.

But banking industry advocates said the idea makes sense. "It is appropriate," said Richard Whiting, general counsel of Bankers Roundtable. "History has shown that a large number of comments filed on applications are repetitive of previous comments."

Mr. Bowen said the reserve banks treat every protest as "substantial," a legal finding that sends the application to the Fed's board in Washington for approval. The Fed's rules give the board 60 days to act on an application, twice as long as the reserve banks get.

Thus, moving authority for some merger applications to the reserve banks could cut processing time in half.

Mr. Bowen's recommendation was delivered in a 30-page audit of the Fed application processing system. He also suggested no longer requiring the Fed's general counsel to approve all requests for waivers from the application process.

A bank often requests a waiver when another regulator also must approve the deal. The Fed routinely grants these. But the requests must travel to Washington. Mr. Bowen said the reserve banks should just act on these applications without input from Washington.

The inspector general also said the Fed should stop running background checks on every person who buys a commercial bank. The Fed found only two problems after running 3,400 name checks in 1994, he said. It should exempt anyone already supervised by a federal banking agency or anyone the Fed has checked within the past three years, he said.

The Fed also should stop delaying applications when it can't quickly complete a name check. Rather than delay, the Fed should require individuals to resign if regulators find information that would prevent them from being a director.

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