SAN ANTONIO - The chairman of the House Banking Committee and the chief executive of BankAmerica Corp. both want financial institutions other than banks to comply with the Community Reinvestment Act.
The anti-redlining law currently applies only to banks and thrifts insured by the Federal Deposit Insurance Corp. Most of them complain that the law is excessively burdensome.
"Why should other credit-granting institutions be exempt?" said committee Chairman Henry B. Gonzalez, D-Tex., in an address Tuesday to 300 bankers at a conference sponsored by the Federal Reserve Bank of Dallas.
Wider Reach Sought
He said the law should be amended to apply to credit unions and nonbank banks such as mortgage and insurance companies.
"I want to take advantage of this interest now in community banking and say, 'What about their role?'" Mr. Gonzalez said.
Speaking at the same conference, Richard M. Rosenberg, the chairman and CEO of BankAmerica, echoed the congressman's view.
"The government should recognize the vast resources that nonbank financial institutions, which are not bound by the Community Reinvestment Act, can bring to the CRA arena," he said.
The 'Big Tent'
"As part of any consideration of banking reforms, Congress ought to consider expanding the scope of CRA to bring these institutions under its umbrella."
And the government should look beyond banks if it really wants to make a difference in the inner cities and in minority neighborhoods, he said. Mutual funds, finance companies, and commercial paper markets should be included in the "big tent" of the reinvestment act, he said.
Hearings on a longer reach for the law are scheduled in the House for next month.
"There is no question that most of these institutions benefit indirectly from FDIC deposit insurance, just as banks benefit directly," he said. "Yet, because they are free from the regulations which are rapidly making the banking industry irrelevant in this country, they are benefiting at the banks' expense."
"As major providers of credit, I believe these institutions have an obligation to help meet the increasingly critical credit needs of distressed communities," he said.
Both the congressman and the banker urged the industry to be more positive about the reinvestment act.
Criticism for Both Sides
Mr. Gonzalez faulted both regulators and bankers for failing to live up to the congressional intent of the law.
Regulators have not enforced the law consistently or aggressively, while bankers have discounted it as a regulatory irritant, rather than a tool for social change, he said.
"Not many banks currently see CRA as a process of useful self-examination," he said. "Most see it as a pestilential requirement to have so many community meetings and document such and such outreach effort - a kind of file-stuffing requirement."
Instead, Mr. Gonzalez said, the act should be "a little watchdog on the comer that reminds us all that the cornerstone of sound banking is the humble, hard toil of working with your neighbors, to see how best to serve the community."
"If CRA means anything, it means making sure that banks do all they can to serve their communities. It means making sure that loan decisions are fairly evaluated. It means making sure that banks understand there are opportunities in their own back yards," he said.
"I am not talking about credit allocation," he said. "I am not talking about using CRA to force banks to make bad loans - for a bad loan does nobody any good. "I am, however, suggesting that CRA properly used will identify real opportunities with real benefits for everyone concerned."
Regulators Seen as Lax
Mr. Gonzalez also charged that regulators are not doing their jobs properly.
"Despite its simplicity, enforcement of the CRA has been lacking," he said. "The proliferation of more expensive fringe bankers like pawn shops and check cashers, show that insured financial institutions are ignoring a large part of the demand for financial services."
"As a result of passive enforcement, community groups have taken the lead in enforcement, using the CRA process to bring bankers to the table to discuss community lending," he said.
Opportunity or Burden?
Mr. Rosenberg said the reinvestment act should be viewed as a business opportunity, not a compliance headache.
Successful banks have learned that the act can be successful only when lenders stop thinking of it as a regulatory burden and take a more affirmative approach, he said.
"Many banks now see CRA as an opportunity, but others continue to see it as onerous and burdensome," he said. "In today's vernacular, they just don't get it."
"I've watched the Community Reinvestment Act grow from a well-intentioned but vague piece of legislation into a major cornerstone of banking regulation," Mr. Rosenberg said. "Although we can debate different aspects of the CRA, no one can deny that it has helped raise the quality of life in communities all across the United States.
"With the scope and the intent of community reinvestment being reevaluated, it is important for banks to demonstrate that we can jump ahead of the compliance curve by developing CRA programs of creativity and substance - programs that translate into real benefits for the community," he added.
Fundamental to that approach, at BankAmerica, is viewing community reinvestment as a way to add business and market share.
"Bankers that get into the market with a profit motive will invest the time and resources to make the right deals and ensure safety and soundess," he said. "Those without a profit motive are unlikely to make the types of investments needed for the long-term success of a CRA program."
Mr. Rosenberg also noted the increasing trend of potential customers scrutinizing lenders' CRA ratings before doing business with them. BankAmerica recently gained significant new business from a major health care firm after the firm hired a consultant to investigate the bank's community development record.
Government as 'Enabler'
Mr. Rosenberg also called on the government to become an "enabler" of community lending, as opposed to just the enforcer of the legislation, through tax credits, inclusive government programs, and "safe harbors" for banks with outstanding CRA ratings.
"The President's community development bill is a very small step in the right direction," he said. "There is more the government can do in the way of incentives and regulatory reforms that will encourage mainstream financial institutions and existing agencies to significantly expand their community reinvestment activities."