Harris Denounces CRA Rating, Requests Another Fed Review

Disappointed by a poor community reinvestment rating, Harris Trust and Savings Bank of Chicago has taken its dispute with regulators public.

The Harris Bankcorp unit said on Tuesday it received a "needs to improve" rating from the Federal Reserve Bank of Chicago. The score is the second-lowest on a four-tier scale adopted last year under an amendment to the Community Reinvestment Act.

Requests Another Review

But instead of downplaying the news, Harris called a press conference to denounce the evaluation and to issue a request for another review.

Harris, a $13 billion-asset unit of Bank of Montreal, is not the first to ask regulators for a second chance. IBJ Schroder, a subsidiary of the Industrial Bank of Japan Ltd., recently requested a reevaluation from the Federal Reserve Bank of New York after getting a "needs to improve" rating.

Bankers interviewed said they expect other institutions to follow the path taken by Harris and IBJ Schroder. Shirley McLane, vice president and community reinvestment officer at Chicago-based Northern Trust Corp., said if her institution did not receive a "satisfactory" from regulators, it too would request a second evaluation.

Since the community reinvestment law was strengthened a year ago, bank compliance officers have frequently complained that regulators lack uniform standards for CRA exams and that documentation is overvalued. Under the new rules, banks must make CRA ratings public, and regulators give more weight to the ratings when reviewing new business applications.

Marketing Is Faulted

In its evaluation of Harris, the Chicago Fed did not fault the bank's lending commitments. The regulator said the bank did not do enough mass marketing of its reinvestment programs and did not put enough of its energies into suburban Chicago.

Harris is fighting the Fed, saying it has been an active lender in low- and moderate-income communities for seven years. "I don't think the rating reflects our efforts and results in the community," said Edward Williams, senior vice president and community reinvestment officer.

The bank is in the third year of a five-year program to lend $85 million in low- and moderate-income neighborhoods for housing purchases, renovations, and small businesses.

Fed Declines to Comment

A spokeswoman for the Chicago Fed would not comment on Harris' request, but said it reexamines its 200 member banks every 10 to 14 months.

In response to the IBJ Schroder request, the New York Fed has said it would consider reevaluations in cases where circumstances had changed materially. It declined to comment on whether it would specifically speed up a review of IBJ Schroder, which recently received a satisfactory rating from New York State.

An official of a local housing agency said he was surprised by Harris' rating. "I think they're a very active player," said Bruce Gottschall, executive director of Neighborhood Housing Services of Chicago.

Could Delay or Block Merger

A poor CRA rating could delay or block any applications to expand into new markets or new businesses. Harris has signed a merger agreement with First National Bank of Geneva, Ill., but has not yet filed a merger application with regulators. A Harris spokeswoman said such a filing would be premature.

Of the 78 banks that have disclosed ratings by the Chicago Fed, 10 were told they need to improve and one received the lowest rating, according to a Fed spokeswoman.

"I think you really have to do your homework ahead of time," said Ms. McLane of Northern Trust, whose O'Hare subsidiary bank has received an outstanding CRA rating.

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