found himself in the cross hairs when it comes to Community Reinvestment Act reform. The most recent controversy erupted last week when a highly critical Federal Reserve memo surfaced. The document - penned by Glenn Loney, the Fed's associate director of consumer and community affairs - criticized changes Mr. Ludwig favored in the instructions examiners will use when grading a bank's compliance. Mr. Loney accused Mr. Ludwig of weakening the rules so much that examiners would have to give every small bank a "satisfactory" rating. He also said the changes were confusing and "condescending" to field examiners. The charges stunned many industry observers, who said the Fed is usually the agency trying to weaken the reinvestment laws. "It is a total reversal of roles," said Kenneth Thomas, a noted author on CRA. "It is totally bizarre." Officials at the Comptroller's office were less than amused with the memo. "This is a hell of way to run a ship," one official said. "We are trying to write the rules, and the Fed is leaking like a sieve." The OCC is going to great lengths to repair the damage and set the record straight. To detail his version of events, Mr. Ludwig last Thursday released a letter to The New York Times, which first reported Mr. Loney's memo. The Times story interpreted Mr. Ludwig's moves as an attempt to preempt the Republican Congress's efforts to significantly weaken the community reinvestment law. Mr. Ludwig dismissed the charge as ridiculous, noting in the letter that his agency was committed to reducing the regulatory burden long before last year's election shifted control of Congress to the GOP. His burden-reduction suggestions, Mr. Ludwig contended, were not intended to weaken the law. "The sole purpose of my suggestions was to reduce unnecessary burden - but certainly not at the expense of weakening examiners' ability to assess a bank's CRA performance," Mr. Ludwig wrote. OCC officials said the other agencies, including the Fed, have agreed to incorporate many of Mr. Ludwig's ideas in an introduction to the exam guidelines. The controversy unnerved House Democrats, who have been fighting Republican efforts to alter the law. Mr. Ludwig headed to Capitol Hill Nov. 2 for a closed-door meeting with them to explain, point by point, his burden-reduction suggestions. Democrats left the meeting impressed. "We were encouraged by his response," said Rep. Joseph P. Kennedy 2d, a Massachusetts Democrat on the banking committee. "I look forward to him confronting those who have sullied his reputation in the press." Mr. Ludwig, in the briefest of comments to reporters after the session, said he plans to contact the Fed about the memo. "This leak situation is outrageous," he said. Theories abound on why the Fed circulated the memo. One of the more repeated rumors hints at a rather Machiavellian motive. Some observers said the Fed released the memo to defeat Mr. Ludwig and make CRA exams as burdensome as possible. That would allow bankers to return to Congress next year, demanding that lawmakers soften the rules. Mr. Thomas said the theory has an amusing ring to it. But he said it contains one fatal flaw - the Fed may actually support CRA. "It really seems like a lot of people there have gotten the CRA religion," said Mr. Thomas, who used to be a vocal Fed critic. "I really think there is a legitimate concern."

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