WASHINGTON Regulators are preparing to update Community Reinvestment Act compliance rules next year and are sure to spark a protracted debate in the coming months.
Officials at the banking and thrift agencies said that in June they will solicit public comments on whether to, among other things: broaden their authority to consider the CRA records of merging banking companies; permit more banks to qualify for streamlined exams; revamp the investment test; or redefine assessment areas to account for Internet banks.
But regulators, banking officials, and community activists predict that the changed political climate in Washington will prevent a major rewrite. They said President Bush seems happy with CRA the way it is; the top regulators are holdovers from a Democratic administration and could be replaced before the review is complete; and no major players on Capitol Hill are clamoring for big changes.
Anything could happen, but if I had to bet Id say there will only be incremental tweaking, said JoAnn Barefoot, an independent consultant in Columbus, Ohio, who advises banks on consumer issues. I dont see a huge political appetite for taking on the hard issues right now.
Indeed, the Office of the Comptroller of the Currencys Nan Goulet, director for community and consumer policy, said at a National Community Reinvestment Coalition conference here this month that regulators are not contemplating an overhaul.
Industry officials are expected to tread lightly in urging regulators to make pro-industry changes for fear of opening a Pandoras box.
Rob Rowe, regulatory counsel for the Independent Community Bankers of America, said no industry officials who were around the last time when the Clinton administration mandated broad revisions are eager to see a whole hog rewrite. (The rules were rewritten in 1995, and regulators pledged to revisit the changes in 2002, or five years after they were implemented.)
Ms. Barefoot said that part of the challenge is that any attempts by regulators to modernize CRA will probably be hamstrung by the bills statutory limitations. In other words, they cannot do much without rewriting the law, she said.
And the chances of gridlock on such legislation would be high. Senate Banking Committee Chairman Phil Gramm has been a strong critic of CRA, but any efforts by him to roll it back in the Senate could be countered by Democrats, who now hold half the chambers seats. A committee spokeswoman said Friday that Sen. Gramm has no plans for CRA hearings.
Still, various factions will be pressing their agendas.
For instance, community activists are expected to link the CRA discussion to predatory lending issues.
Many of them are still smarting from the fact that technicalities in the law, and changes made by the Gramm-Leach-Bliley Act of 1999, inhibited them from protesting Citigroup Inc.s acquisition of Associates First Capital Corp.
Before enactment of Gramm-Leach-Bliley, the Citi-Associates deal would have needed Federal Reserve Board approval and been subject to public hearings and a comment period. But the law permits nonbank acquisitions to proceed without Fed permission except in extreme circumstances. Plus, the law did not consider Associates a bank holding company, since it owned three limited-purpose charters.
As a result, community groups could not object on grounds of Associates controversial lending practices or either institutions CRA record.
A Fed lawyer, speaking on condition of anonymity, said the agencies will probably examine these issues. Further, she said, they may try to determine whether regulators have any authority to probe a banks nonbank affiliates that make loans, such as mortgage companies, but do not take deposits.
Industry officials are expected to fight such campaigns, but welcome pro-industry considerations.
The OCCs Ms. Goulet said the agencies will seek comment whether the definition of large banks those with $250 million or more of assets, or those owned by a holding company with assets of $1 billion or more should be changed. Large banks are examined every two years, small ones every four or five. Large banks have to meet a three-pronged CRA test, whereas banks below the limit qualify for streamlined CRA examinations.
Some banking industry officials will push to raise that figure, perhaps to $1 billion of assets.
When CRA was adopted, a bank with $10 billion in assets was a large institution, ICBA president Thomas J. Sheehan wrote in a letter to regulators last year. Now, banks are reaching into the hundreds of billions in assets To say that a bank with $251 million in assets is the same as one of these monolithic conglomerates is absurd.
Banking industry officials are also expected to push for revamping, or eliminating, the investment test, which requires large banks to make investments in their community. Ms. Barefoot said the test one of the three key CRA tests, along with lending and community service reviews is unpopular with the industry because it lacks clarity and has been applied inconsistently. Bankers want a more quantitative measure and a better idea of which activities and investments count, she said.
Federal Deposit Insurance Corp. Chairwoman Donna Tanoue has suggested replacing the test with something that more accurately measures a banks overall community development activities.
Ms. Goulet said regulators will also seek input on how to determine a banks assessment areas in the Internet age.
OTS Director Ellen Seidman acknowledged the shortcoming during a speech last year.
The definition of a CRA assessment area, or where an institutions compliance is judged, needs to be updated to take into account the reality that banks and thrifts are reaching customers far from their physical headquarters, she said.
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