We're having trouble scrounging up the money for our marketing programs," is the refrain we often get from the CRA people at many of our bank clients.

The problem is that the CRA function has traditionally been financed as a compliance issue and/or social cause, not as an opportunity to develop new and profitable business. Quite often what that means is that the largest slices of the marketing dollar loaf go to the other mainstream areas of business, and CRA gets something akin to the crumbs. What and who is responsible for this imbalance? How about starting with the bank's chief executive.

A recent study cited by the American Banker revealed that the average bank's CEO spends less than 5% of his time on CRA issues. However, if a bank has anything less than an "outstanding" CRA rating, the CEO must spend considerably more time on expanding the bank's business in low-income and moderateincome areas. Here is why:

The CEO has two primary goals: increase profitability and maximize shareholder value. Let's start with the first point. What the CEO probably won't tell you, but believes, is that the expansion of lending into LMI areas is a money loser.

"Why put a half-million dollars behind a CRA lending effort when we think we can get a better return by putting the money behind private banking?" is the typical response. In a more public forum, the banks complain about forced credit allocation under the spectra of proposed changes to the CRA regulations. We find there arguments to be specious and, worse, short sighted.

The truth, (and it is being proven everyday) is that banks have a better opportunity to generate more profitability from lending in LMI areas than to many more affluent and thus "overbanked" communities.

The reasons are evident. The affluent segments have been oversaturated and are harder to convert to customers.

Conversely, there are many creditworthy households in lower-income areas that have a great need for the banks' products and services; but this market is not being reached.

The banks often say, "how do we find these people7" Well, the data base technology and mathematical modeling techniques now exist to help find those individuals and market to them cost-effectively.

(Note: I'll get off-track for a moment by saying that most bank CEOs are technically ignorant, and they know little of the leading-edge technologies that can give their bank a substantial competitive advantage. If ever there was an industry that should embrace the latest in technology, it is banking. Since banks don't make anything, they are primarily engaged in the business of moving information. Bank CEOs don't necessarily need to become "techno-geeks," but they should be current on the types of technology and what benefits they bring.) Let's go to the second CEO priority: maximizing shareholder. value. Obviously, increased earnings accomplish that, but an acquisition of the bank can have even more impact on the share price. Two political realities he on the very near horizon: (1) the interstate banking bill will pass into law, creating an active acquisition market, and (2) the new CRA regs (in whatever form they become effective) will place significantly more emphasis on lending results, i.e. bottom-line numbers.

We also sense a couple of other key factors at work in Washington. First, the regulators are going to get tougher on the ratings. Many banks that had a "satisfactory" in their last exam will be facing something less in the next go-around. Second, CRA performance is evolving into a litmus test to determine whether an acquisition can go forward or not. Woe be to the bank CEO whose bank's poor efforts in CRA inhibit an opportunity to get a multiple on the stock price during a sale. Boards of director liability issues abound.

In summary, CEOs (especially at banks over $250 million in assets) need to view lending in LMI areas as a business opportunity.

They should be aware of and ultimately utilize before their competitors the new untapped technologies in order to access what these opportunities offer. Second, they need to define LMI lending as an untapped mainstream area of business. This requires the proper allocation of people, as well as financial and technical resources.

The CEO needs to start by asking his people, "What must we be doing to get more business in LMI areas?" It is also a fair question for the banks to ask of community groups, and they might be pleasantly surprised by the response.

Mr. Brown 'is the managing partner of Financial Modeling Concepts, a finn that develops marketing programs in low-income and middle-income areas for banks.

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