Laware: CRA reform unlikely to please bankers.

WASHINGTON -- Banks are unlikely to be happy with reform of the Community Reinvestment Act, a top Federal Reserve official warned Thursday.

While few elements of the reform have been agreed upon, growing talk of quantifiable measures and added documentation have reignited some fears about the scope of the effort.

"The direction CRA reform seems to be going is probably not what banks have in mind," Fed governor John P. Laware said.

Two-Tiered System Welcomed

While much of the industry is pleased by indications that regulators favor a two-tiered system -- with less burden for smaller lenders -- many remain concerned that heavy emphasis on where and to whom loans are made will lead to government allocation of credit. In addition, they fear mandates for greater record-keeping on many types of loans, including small-business and consumer.

"The concern with CRA reform is that if you're not careful, you will either end up with credit allocation or set up a slippery slope to credit allocation," said Ed Yingling, chief lobbyist of the American Bankers Association.

"And we would find it terribly ironic if what was set up to reduce paperwork ended up creating more of it," he added.

The President has given bank regulators until Jan. 1 to reform the law so that it focuses on loans made and reduces unnecessary documentation. After holding public hearings around the country in August and September, the bank regulators have yet to come up with a proposal.

"No decisions have really been made," Grifford Garwood, director of the Fed's consumer affairs programs, told the Fed's Consumer Advisory Council Thursday. Still, the regulators hope to come out with a plan in November, and give the public 60 days to comment, he said.

The council -- an independent advisory group made up of bankers and public advocates -- unanimously recommended a set of principles for CRA reform, including:

* Requiring banks to create CRA business plans "with quantifiable performance measures against which their performance is measured."

* A two-tiered exam structure with fewer burdens for smaller banks.

* And a five-tiered grading system.

During the meeting, Mr. LaWare told the group that the Fed remains "extremely sensitive" to concerns that the government not dictate banks' lending activities.

|Quantifiable Measures'

"The board has always tried to avoid anything that would constitute allocation of credit," Mr. Laware said. "When you start talking about quantifiable measures, there's a tendency to equate that with credit allocation."

If strategic plans were adopted, he said, the Fed would favor limitations on the extent of community involvement, especially "obligations to get community group approval for the plans."

"Unless much of the other obligations of banks to comply with CRA are removed, this [strategic plan approach] is a significant addition to the administrative burden of the bank," he added.

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