WASHINGTON -- The Republican conquest of Congress last week could affect the timing and substance of new rules under the Community Reinvestment Act.
In particular, proposed race and gender reporting requirements -- which have drawn sharp criticism from banks and the Federal Reserve Board -- could be dropped.
"My guess is you're not going to see race and gender reporting in the final reg," said Kenneth A. Guenther, executive vice president at the Independent Bankers Association of America. "I think the Republican committees are going to be solidly behind the Fed on this."
Comments are due Monday on the agencies' second attempt to make CRA more effective and less bureaucratic. Regulators began working on CRA reform 18 months ago and have said they plan to finish the new rules by yearend.
Major elements of the plan, including data collection and streamlined exam procedures for small banks, are scheduled to take effect July 1. The rest of the rules are to be implemented by July 1, 1996.
While President Clinton has been a motivating force, regulators also have felt pressure from Democratic congressional leaders to make the CRA work better. Those lawmakers have called CRA enforcement lax, noting that 95% of all banks and thrifts win ratings of "satisfactory" or better.
It is possible that a Republican-controlled Congress could reverse the urgency of rewriting CRA rules. The GOP is committed to less government -- particularly less regulation of business.
Although it is too early to tell what the Republicans' agenda will be, aides to some Republican lawmakers voiced criticism of the CRA proposal in the wake of last week's elections.
"The election could have an impact on the politics of CRA," said Edward L. Yingling, the American Bankers Association's chief lobbyist. He questioned whether the regulators' yearend deadline might slip. Republican criticism is likely to fall on receptive ears at the Fed. The central bank's governors, while generally supportive of reform, have been critical of the proposed race and gender reporting requirements. Fed Governor Lawrence Lindsey has said requiring banks to report the race and gender of loan applicants is too expensive, considering that regulators have not yet explained how the information would be used. Congressional support could strengthen the Fed's hands in negotiations with its fellow regulators. The new reporting requirements are "the most vulnerable pan of the proposal, both substantively and politically," agreed Karen Shaw, president of ISD/Shaw Inc.
Collecting race and gender data under the CRA confuses community reinvestment with lending discrimination, she added.
"CRA ought to be about economic development, not social justice," Ms. Shaw said. If the government wants that information, many bankers argue, it should be collected under Regulation B, the Fed's rules implementing the Equal Credit Opportunity Act.
While new reporting demands may be dropped from CRA reform, most sources expect the remainder of the proposal will be largely maintained by the agencies.
Many bankers now wish the words "CRA" and "reform" had never been put together, but most are relieved that the agencies backed off the original December 1993 plan.
The revised CRA proposal dumps the current 14 assessment factors in favor of a threepronged emphasis on lending, investment, and services.
While examiners would still have plenty of latitude, at least rating decisions would be based on objective criteria, according to Griffith Carwood, director of community affairs at the Federal Reserve.
Banks and community groups would be able to compare the ratings given to various banks on each of the three tests.
So while lt'S a subjective system, judgments wiI1 be based on performance data. Over time, the basis for those judgements will become clear, proponents claim.
"The current rule is subjective in what's looked at and how that's interpreted," said Stephen Cross, deputy comptroller for compliance management. "The new rule will be more clear about what the examiner looks at.
"CRA complaints in the future will be that we didn't interpret the information right, not that we looked at the wrong things ."
Gone in the September revision is the controversial marketshare test under which examiners would have compared a bank's lending in low-income areas to its lending in affluent areas. Aside from the race and gender reporting, the overall data collection burden was reduced in the revised plan.
"The data gathering has gone up from what we're doing now, but down from the first proposal," said Gary Geisel, executive vice president for retail banking at Citizens of Maryland. "It's hard to say that's good news." Other important questions remain.
For example, how will regulators use the potent enforcement tools being proposed? How will a bank's service area be defined? How much impact will community groups have on banks that opt to customize their CRA exams? How will the streamlined exam for small banks work? How will examiners use the vast leeway for judgment that the new rules give them?
"The true test of whether this is an improvement is only going to be known when we see how the individual examiners implement it," said James D. McLaughlin, director of agency relations at the American Bankers Association,
For the week leading up to the Nov. 21 comment deadline,
American Banker win a series of articles routlining elements of the plan that have not received much attention.
Tomorrow's installment examines how banks will define their service areas under the new CRA.
Thursday, two articles will delve into the streamlined exam for banks under $250 million of assets .and the alternative for banks to customize CRA exams using the "strategic plan option."
Friday's installment will focus on how wholesale banks will comply with CRA.
Finally, Monday's story will examine the new enforcement tools CRA reform would hand the regulators.