WASHINGTON -- As part of an ongoing effort to educate bankers about fair lending, the Federal Reserve released a video Thursday detailing steps lenders should take to ensure they are not discriminating.

The 23-minute video outlines 10 recommendations -- ranging from staff training to self testing -- that Fed officials say have proven effective in improving banks' records of lending to minorities.

Lenders who implement all the programs will go a long way to ensuring they are not discriminating, said Federal Reserve Governor Lawrence B. Lindsey, at a press conference announcing the video's release.

"Generally, I think banks that follow these types of practices probably are doing quite a good job," he said.

Lenders Seeking Guidance

The Fed effort comes as lenders are searching for more concrete guidance from regulators and law enforcement officials about practices they must put into place in order to survive bias investigations.

As government officials grow more zealous in their enforcement of fair-lending laws, bankers fear that just about any refusal of minority loan applications will put them at risk of government investigation.

None of the Fed's recommendations in the video - "Closing the Gap: A Guide to Equal Opportunity Lending" -- are new. All of them were put forth in a guidebook released by the Boston Fed last year. That guide served as the basis for the video.

Nonetheless, the Fed's high-profile release in video form -- complete with an introduction with Fed Chairman Alan Greenspan -- has captured the industry's attention.

"Greenpsan putting down the 10 commandments of fair lending is a very, very useful effort," said Kenneth Guenther, executive director of the Independent Bankers Association of America.

Not Requirements

Fed officials stressed their proposed programs are merely recommendations to the industry, not new requirements. But with so much uncertainty among lenders about what government investigators are looking for, they are unlikely to be taken lightly.

"When they are put forward with the imprimatur of Chairman Greenspan, they go above and beyond recommendations," Mr. Guenther said.

While not new, many of the recommendations are controversial. For example, the program suggests self testing as a way to ensure loan officers are not biased against minorities. But because the results of these tests could be self-incriminating, many bankers have been reluctant to implement them.

'Second-Look' Policies

The Fed video also recommends banks implement "second-look" policies, to review applications that are denied to make sure the decision was bias-free. But regulators have warned bankers that unless carefully structured, these programs actually could be illegal.

While second-look programs have become widespread, some question whether they are effective. House Banking Committee Chairman Henry B. Gonzalez appears to be one of them.

"I have asked several bankers whether this process has helped them make any new loans," he told community advocates Thursday in San Antonio. "Nearly all have said no.

"Under the current system, both bankers and community groups have become so focused on compliance with the law that they forget to evaluate whether a program, process or partnership actually increased the community's resources," he added.

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