The banking industry is spending nearly seven times as much money collecting data to comply with the Community Reinvestment Act as regulators originally estimated, according to revised interagency calculations.
In May the banking agencies published a notice in the Federal Register saying that the industry spends 1.25 million hours a year to collect data on the loans covered by the 1977 law, which is at the center of disputes over financial reform legislation. That was significantly higher than the previous estimate, roughly 186,464 hours, made in 1995. But the agencies did not publish how that translates into dollars.
Additional documentation released last week by regulators, however, pegs the industrywide compliance cost at about $35.4 million a year. That's up from $5.3 million a year if the previous compliance-time numbers are plugged into the agencies' cost formulas.
Easier to understand, these dollar figures provide further ammunition for Senate Banking Committee Chairman Phil Gramm and others who call the CRA a significant burden.
Indeed, Sen. Gramm and industry officials argue that the agency estimates fail to consider all the direct and indirect costs associated with compliance, including the time bankers spend with examiners, losses incurred on CRA loans, and any payments banks make to advocacy groups.
CRA advocates counter that compliance costs are minuscule compared with the industry's record earnings in 1998 of nearly $62 billion.
Regulators cautioned that these latest estimates, prepared to comply with a federal paperwork-reduction law, measure only reporting, record keeping, and disclosure costs and are not meant to be a full accounting of the CRA's regulatory burden.
The Federal Reserve Board said institutions that it supervises spend $3 million and 151,680 hours a year, up from the projection of $408,200 and 20,410 hours made in 1995. The Office of Thrift Supervision said federally chartered thrifts annually spend $5.9 million and 177,525 hours on compliance, up from the $821,370 and 24,890 hours projected in 1995.
The Office of the Comptroller of the Currency said that national banks spend $11.3 million and 394,025 hours each year to collect the necessary CRA data, up from $1.6 million and 57,044 hours foreseen in 1995.
The Federal Deposit Insurance Corp. reported the state banks it oversees spend $15.1 million and 524,861 hours a year, compared with the $2.4 million and 84,120 hours projected in 1995.
Regulators blame poor initial estimates rather than a steep rise in actual costs.
The 1995 estimates coincided with a significant change in CRA rules and were based on projections and assumptions, but the new figures were culled from experience.
In particular, institutions with more than $250 million of assets are spending far more time geocoding loans and reporting optional data than originally expected.