Proposed changes to Community Reinvestment Act guidelines would give rural banks and thrifts credit for investing in all types of development projects, not just those that benefit low- and moderate-income residents.
Affordable-housing advocates argue that banks and thrifts would have little incentive to invest in affordable housing if the guidelines are changed. Bankers, on the other hand, say the proposals recognize how much other kinds of projects, including commercial ones, can benefit communities.
"What people really need here are more businesses who hire people," said Ronald W. Heaton, the president and CEO of the $355 million-asset State Bank of Southern Utah in Cedar City. "We lost a lot of jobs when we lost uranium mines, because we're near national parks," such as Zion and Capitol Reef, "that don't want a lot of mining nearby. I don't think it would be harmful if we could receive credit for helping small businesses who could employ people and raise their incomes."
Rural banks and thrifts, like their urban counterparts, currently must invest in projects that benefit poor people to get CRA community development credit. But both the Federal Deposit Insurance Corp. and the Office of Thrift Supervision are proposing to expand the ways the banks and thrifts they supervise could satisfy the community development requirements.
Under the FDIC's proposal, banks would receive community development credit for community development activity that benefits low- or moderate-income individuals, or residents of rural areas. This means banks in predominantly rural markets could invest in projects that could benefit anyone in their markets.
Rural banks, like urban ones, would still need to make loans on existing properties to people with low or moderate incomes in order to get a "satisfactory" CRA rating.
The agency did not say what it meant by "rural."
David Barr, an FDIC spokes-man, said average incomes in rural areas tend to be lower than those in urban areas, so investments in developments that benefit moderate-income individuals in rural areas should get CRA credit.
Also, because of lower property values, rural areas have a smaller tax base for supporting infrastructure, so banks are often asked to help with upgrades to schools, libraries, or sewer systems, Mr. Barr said.
"Community banks are a constant source of support for these efforts, yet do not now receive recognition for these activities in a CRA evaluation to the extent they should," he said. "They would be rewarded for these important activities by improved CRA ratings."
The FDIC is seeking comments on its proposal and will vote on final rules in two months.
Last week the OTS announced that it would also propose broader criteria for community development credit. It plans to let thrifts get CRA credit for investing in developments that would benefit "underserved" rural communities. (The agency did not define "underserved.")
The OTS said it is working on the proposal because often there are not many affordable-housing projects being built in their areas. To get CRA credit, many rural banks invest in projects in more urban areas - outside their markets. This practice "results in a predominantly urban CRA focus that the law was never intended to produce," the OTS said in its press release announcing the forthcoming proposal.
Chris Smith, an OTS spokesman, said agency officials would not comment further until the proposal was published. That is expected to happen within the next month or so.
Comptroller of the Currency John D. Hawke said late Tuesday that he was considering CRA reforms for national banks. (See "
Affordable-housing advocates say that if banks had the choice, they would favor investing in small businesses and market-rate housing over less profitable affordable housing.
"Given the pressure of the market, and given that it's getting more and more difficult to serve this population, it's easy to see where banks could be driven away from serving this particular market," said Moises Loza, the executive director of the Housing Assistance Council in Washington.
Colleen Fischer, the executive director of the Council for Affordable and Rural Housing in Washington, said banks may also start shying away from renovating existing affordable housing units, because the banks could just as easily get CRA credit doing other things.
Some bankers, such as D. Michael Jones, the president and chief executive of Banner Corp. in Walla Walla, Wash., agree with the advocates.
The $2.8 billion-asset company's Banner Bank would continue to invest in affordable-housing funds like those offered by the nonprofits Homestead Capital of Portland, Ore., and Impact Capital of Seattle, Mr. Jones said. But he is concerned that smaller rural banks would not.
"There are only so many dollars to invest in the community, and this may affect the choice between doing loans to small businesses in the area and doing loans to build affordable housing," Mr. Jones said.
Both of the funds help develop affordable housing in urban and rural areas.
State Bank of Southern Utah's Mr. Heaton said that if regulators adopted the proposed changes, his bank would still invest in affordable-housing developments. Southern Utah Bancorp. unit invests in such developments through Utah Community Reinvestment Corp., a Salt Lake City nonprofit that invests in both urban and rural areas.
"There are people who provide essential services to our communities, but they don't make a lot of income," Mr. Heaton said. "We ought to have housing for them, so that our communities can continue to be great places to live."
Officials at both the American Bankers Association and the Independent Community Bankers of America say they welcome the regulators' proposals.
Karen M. Thomas, the ICBA's executive vice president, said the proposals would allow rural banks to use their resources to benefit their own communities, rather than others within their state.
Mr. Loza said that a reasonable compromise would be requiring rural banks to invest something in projects that benefit low- or moderate-income individuals, but also giving the banks some CRA credit for investing in other types of projects, including commercial ones.
