The showdown over the Community Reinvestment Act moves to the House Banking Committee this week.

Observers predicted Friday that the Senate Banking Committee's decision to exempt small, rural banks from local lending requirements will embolden CRA opponents on the House panel.

"We feel a lot more enthusiastic," said an aide to Rep. Bill McCollum, R-Fla., author of four proposed amendments to scale back CRA.

House Banking began voting on financial reform March 4 with few partisan fireworks. But that could change when the panel reconvenes Wednesday.

Senate Banking approved financial reform March 4 on a party line vote of 11-9. The legislation would exempt rural institutions with assets under $100 million from the Community Reinvestment Act. According to Federal Deposit Insurance Corp. statistics, that's 3,876 banks and thrifts with assets of $176 billion, or 3% of total assets.

Democrats blasted Republicans for escalating their attack on CRA, and President Clinton promised to veto the bill before the committee even voted.

The lone Democrat who voted for the rollback was Sen. Tim Johnson of South Dakota.

"A narrowly tailored CRA exemption for small, rural banks makes sense and gives our community banks a competitive break as we create vast new entities which will compete with them for increasingly scarce deposits," he said in statement.

"While CRA is a critical program, our rural community banks by their nature need and support local economic development."

But Sen. Paul S. Sarbanes, the ranking Democrat on the Banking Committee, said that CRA is even more important in small towns, because the local bank is often the only credit source.

Rep. McCollum is expected to try and raise the threshold to institutions with assets less than $250 million-no matter where they are located.

That would exempt from 8,631 banks and thrifts, or 83% of them, from CRA, according to the FDIC. Those institutions hold $680 billion of assets, or about 10% of the total.

Rep. McCollum also may propose to strip provisions that would require a holding company seeking to make an acquisition to maintain a "satisfactory" or better CRA rating. The Senate Banking bill does not contain that requirement.

Experts agreed that the compliance burden for small banks was greatly eased when CRA rules were streamlined three years ago, but said more relief would be welcomed.

"While the burden has been reduced, it is still more than is warranted by the benefits," said Jo Ann S. Barefoot, a partner in the consulting firm KPMG Barefoot Marrinan.

But community advocates said they are gearing up to lobby against any CRA rollbacks in House Banking.

"It was a blow that it happened in the Senate," said Debby Goldberg, neighborhood reinvestment specialist for the Center for Community Change. "It's kind of a call to arms for CRA supporters around the country."

Others said House Banking Chairman Jim Leach will side with Democrats and stop anti-CRA amendments.

"I believe Mr. Leach has made it plain that there is an agreement between the committee leadership that the House wants to pass a bill that the President will sign," said Annie Hall, a lobbyist for Bank One Corp. of Chicago.

Meanwhile, Republicans and Democrats on Senate Banking acknowledge they must settle their differences on CRA and other issues, or the bill will never pass the full Senate. The deadlock could last for weeks or months.

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