Japanese-Owned Bank Granted Higher CRA Grade by N.Y. Fed

In a development that could hearten foreign-owned banks that don't make consumer loans, IBJ Schroder Bank and Trust Co. has received an upgraded rating for community investment activities.

The bank, a subsidiary of the Industrial Bank of Japan Ltd., protested the "needs to improve" rating it received in June from the Federal Reserve Bank of New York for compliance with the Community Reinvestment Act.

New York-based IBJ Schroder said last week that its rating rose one notch, to "satisfactory," the second-highest on a four-point scale.

"The significance is that the Fed will come back and reevaluate you if you make a good case," said Warren Traiger, a New York-based attorney specializing in government compliance with the CRA.

A low CRA grade significantly hurts a bank's chances of getting approval for regulatory applications.

Despite the Fed's quick review, bankers complained that various regulators who rate CRA activities are inconsistent in their policies. The Chicago Fed recently rejected a request from Harris Trust and Savings Bank for a new CRA exam.

Regulators with tight examination budgets said they do not as a matter of course rush to do second evaluations.

"It's not our policy to reexamine banks because they wish to upgrade their rating," said Jan Scandella, a review examiner with the Federal Reserve Board.

But a New York Fed spokesman said the regulator tries to revisit banks that receive low ratings within eight to 12 months. Others are scheduled for review every 18 months.

The New York Fed returned to Schroder quickly because "we had information of a material change in performance at the bank," the spokesman said.

Donald H. McCree Jr., chief executive and president of IBJ/Schroder, complained in a letter to the Fed last June that the regulator had not credited all of the bank's community programs.

They also noted that the New York State Banking Department, IBJ/Schroder's other regulator, gave the bank a "satisfactory" CRA grade shortly after the Fed rating was received.

The Fed criticized IBJ/Schroder, whose parent is the world's largest bank, for making only two community development loans over $40,000, extending just one $500,000 line of credit at a below-market rate to a low-income housing group, failing to document its activities, and failing to get board support for low-income lending.

Points for Bridge Financing

Eric K. Tarlow, IBJ Schroder's chief compliance officer, said the Fed failed to credit a $4.5 million commitment to a pool of bridge financing for low-income housing in New York City.

The bank, which has $7.5 billion of assets, has since provided a $1.5 million line of credit to a nonprofit group and put a $100,000 time deposit in a local bank to fund community development loans.

Of 20 banks whose New York Fed ratings are publicly available, only four received the two lowest ratings and only Schroder has been upgraded.

At the Federal Deposit Insurance Corp., only two or three banks out of 321 that received low ratings have been reviewed a second time, an official said.

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