WASHINGTON - In their first changes to community reinvestment rules in nearly a decade, bank and thrift regulators are planning revisions that could make it far easier for more than 1,000 banks to comply with the regulations.
Yet community groups say the moves would do nothing to boost consumer protections and would weaken the quarter-century-old Community Reinvestment Act by making it easier for banks to shift some loans to affiliates that are not subject to the exams the law requires.
Activists, along with officials with banking trade groups, say the proposal the Federal Deposit Insurance Corp. is set to consider today has three main components. It would:
- Allow banks with as much as $500 million of assets to have their CRA performance evaluated under the streamline examination process for "small banks."
- Create a new predatory-lending test that would be included with the CRA review.
- Give banks and thrifts the option of including all or none of their affiliated companies in their CRA examinations.
It seems the idea is to tweak the CRA rules rather than overhaul them. Several observers say regulators are taking this approach because they want to balance the changes so they can win over banks and activists at the same time.
"Is this something that's going to make either group very happy? No," said Charlotte Bahin, the director of regulatory affairs at America's Community Bankers. "It doesn't address a lot of the issues that a lot of people are anxious to have addressed."
Perhaps the largest change would be for banks and thrifts that have assets of $250 million to $500 million. For the first time they would become eligible for the small-bank exam, which is currently limited to banks and thrifts with assets of $250 million or less.
"It would make our life easier," said Louis Antoniello, the compliance officer at the $437 million-asset Long Island Commercial Bank in Islandia, N.Y. But he said that even the new threshold would not go far enough.
"If they're going to start classifying $500 million as a large bank," Mr. Antoniello said, "then I have a question for them: We're surrounded by the Bank of New York, Fleet Bank, North Forth Bank, Citibank, Chase, HSBC. What are they considered to be?" There is no way we could be in the same category as any of those."
Small-bank exams consider just an institution's lending record, including its loan-to-deposit ratio. Large banks, on the other hand, are subject to a three-part test that considers their record on lending, community investment, and service. Large banks must also collect data on loans to small businesses, including farms.
The proposed change would add 1,104 banks and thrifts with $384 billion of assets to the 6,981 institutions with $630 billion of assets already subject to the small-bank exam. That would leave 1,098 banks and thrifts with $7.9 trillion of assets subject to the full exam process, according to FDIC data.
First proposed by the Clinton administration in 1993, the small-bank exam process is designed to make it easier for smaller institutions to comply with the CRA regulations.
Banking lobbyists say that a bank's average CRA costs rise by 40% when it moves from a small bank exam to the standard exam. They have been pushing the regulators for years to raise the asset threshold to as high as $2 billion.
Community groups strenuously object to including more banks in the streamlined exam, saying such a move will enable smaller banks to relax their lending in low- and moderate-income areas, especially those in rural areas without advocacy groups.
"It's going to give a wink and a nod to more lenders. It's just taking more of the lenders out of the system," said John Taylor, the president and chief executive of the National Community Reinvestment Coalition.
Though many observers say they believe regulators included the predatory-lending exam to assuage community groups, Mr. Taylor objected to the plan. He said the guidelines the agencies plan to use do not accurately judge predatory lending.
"That effort may do more harm than good, because it may sidetrack legitimate efforts to address predatory lending," Mr. Taylor said. "The argument will now be, 'Well, we don't need predatory-lending [rules] - we're already being examined for predatory lending.' "
Mr. Taylor also took issue with plans to let banks exclude loans made by all their affiliated companies from CRA exams. He said firms would simply leave CRA-compliant loans within banks and shunt upper-income loans to affiliated companies while choosing to exclude affiliates from the review. Current regulations allow banks to pick and choose which affiliates they want to include in the exam. Critics have said that practice lets banks preserve their CRA rating while engaging in discriminatory practices.
An FDIC spokesman said Friday that he could not discuss the proposal his agency was to consider today. The Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve System are each expected to approve the proposed rule after the FDIC vote.
