WASHINGTON - In a sign that the industry's fair-lending problems may be ebbing, Federal Reserve Chairman Alan Greenspan applauded banks for their efforts to reach out to minority borrowers.
Addressing a House subcommittee on Wednesday, Mr. Greenspan said newly released lending data "clearly indicate that the banking community is reaching out beyond its narrow historic areas of interest in making loans.
"I certainly find the results quite encouraging."
Observers said the comments could mark an important turning point in the long-running debate over possible discrimination in lending.
Mr. Greenspan's remarks help "validate the message the industry has been delivering for months - that we are serious about increasing our loans to what are perceived to be underserved areas," said Warren Lasko, executive vice president of the Mortgage Bankers Association of America.
If the discrimination debate "hasn't crested, it's come pretty damn close," said Jim McLaughlin, director of regulatory affairs at the American Bankers Association.
Mr. Greenspan's testimony came just one day after regulators released data showing that lending to members of minority groups skyrocketed last year.
The lending data, collected under the Home Mortgage Disclosure Act, showed that new mortgages for blacks jumped 54.7%, to 125,796, and loans for Hispanics leapt 42%, to 129,695. This was the second year minority lending jumped significantly.
The results could well pay off for the industry in its dealings with Congress, said Kenneth Guenther, executive vice president of the Independent Bankers Association.
"The industry has stepped up to the plate and reached out," he said.
Mr. Greenspan, in his testimony before the House Subcommittee on Domestic and International Monetary Policy, also warned that policymakers must "come to grips" with the problems of the thrift insurance fund. He stopped short of proposing a solution, however.
Several Democratic lawmakers pressed Mr. Greenspan on the new lending data, asking him to link the numbers with the effectiveness of the Community Reinvestment Act.
"Given these statistics, which are very good and glowing, would you suggest that this is not the time to repeal CRA?" asked Rep. Floyd H. Flake, D-N.Y.
The Fed chairman refused to answer, saying the central bank avoids commenting on legislative matters.
But he said public debate over lending discrimination has spurred much of the increase in lending to minorities.
"One of the consequences of the public discussion has been to make the banking community - and depository institutions in specific - quite sensitive that they really are obligated to make loans throughout the community," he said.
Responding to Rep. Barney Frank, D-Mass., Mr. Greenspan agreed to submit a written statement about which, if any, CRA and fair-lending laws Congress could eliminate without hurting anti-lending bias efforts.
On the issue of deposit insurance, Mr. Greenspan said policymakers must immediately determine how to recapitalize the Savings Association Insurance fund before it goes bust. Several proposals are now being debated, including merging the thrift and bank funds.
"The situation is inherently unstable," Mr. Greenspan said. "At some point and in some manner, we've got to come to grips."
The Fed is examining the problem and hopes to release its findings shortly, he said.
Mr. Greenspan's comments came during his semi-annual report to Congress on the state of the economy, known as the Humphrey-Hawkins hearings.
The Fed chairman devoted his opening remarks to monetary policy, saying the chance for a recession caused by excessive inventories is low.
"The behavior of durable goods materials and supplies markets scarcely evidences the type of broad market inventory liquidation that usually has been at the forefront of major inventory recession of the past," he said.
Mr. Greenspan said he expects final sales and real Gross Domestic Product to rise through the rest of the year and to expand at a "moderate" pace in 1996.
Spending on big-ticket consumer items, such as washing machines, should expand, he said.
"These influences should be reinforced by the generally strong financial condition and the willingness to lend of depository institutions, as well as the receptiveness of the capital markets to offerings of debt and equity," he said.