To the Editor:
The letter from Nancy Justice of Central Bancompany in your May 13 issue ["
Using my group's database of CRA agreements between banks and community groups, Federal Reserve economists documented that banks made a greater number of home loans to minorities and low- and moderate-income borrowers in communities covered by the CRA agreements.
In a recent article, Federal Reserve economists again confirm that CRA has induced banks to make profitable community development loans in low- and moderate-income communities that they would not have otherwise made.
While CRA's benefits have been documented again and again, research concerning CRA's burdens has been scant and slanted. A few years ago the Independent Community Bankers of America commissioned a study that purported to show the high costs of CRA compliance. But average CRA employee costs as a percentage of assets for community banks with about $666 million in assets were a miniscule 0.017%.
The ICBA study did not attempt to assess if CRA's benefits of new lending and investing opportunities exceeded the meager costs. We suspect that on a per-bank basis, the benefits are well in excess of the costs.
Given CRA's benefits, the Office of Thrift Supervision's final rule basically eliminating two of the three large-bank tests (investments and services) is highly counterproductive. It will reduce thrift investments and services in low- and moderate-income communities.
The National Community Reinvestment Coalition appreciates that the Federal Reserve Board, the FDIC, and the Office of the Comptroller of the Currency have recognized the value of investment and service criteria on CRA exams and therefore have chosen to maintain these factors on CRA exams for banks with assets between $250 million to $1 billion.
In our comment letter to the agencies, we make a number of suggestions for improving the current proposal, such as adding the distribution of branches and deposit accounts as explicit criteria on the proposed community development test for midsize banks.
In addition, the community development test must rigorously scrutinize the level of investments. We are dismayed with Ms. Justice's comments implying that investment tests force banks to make grants to nonprofit organizations. While her bank may have done this, NCRC has found that grants to community organizations are less than 1% of CRA agreements disclosed under CRA sunshine requirements.
Instead, the great majority of investments in CRA agreements and on CRA exams are critical investments in affordable housing, small businesses, and economic development projects.
Finally, NCRC's comment letter documents that midsize banks have large market shares of small-business and farm loans. The Federal Reserve Board has reached similar conclusions in analyses presented before its Consumer Advisory Council.
A large body of research has documented that midsize banks specialize in making small-business loans in medium-size towns and rural areas. Eliminating publicly available data on small-business and farm lending of midsize banks would abolish the most effective means of public accountability for ensuring that these major small-business lenders are reaching small firms in all communities, including low- and moderate-income ones.
Eliminating the data of midsize banks would also reduce the reliability of the entire CRA small-business database as an analytical and enforcement tool on CRA exams.
We agree with Ms. Justice on one point: Eliminating CRA data collection and abolishing the three-test structure will not save banks that much money, since banks already have established compliance mechanisms and database capabilities.
In fact, an aggressive OTS style of weakening CRA will cost banks and communities greatly in the long run, in the form of missed business opportunities and sharply reduced levels of loans, investments, and services in low- and moderate-income communities.
