WASHINGTON--Regulators told Congress on Friday that their reform of the Community Reinvestment Act will not include a "safe harbor" provision for banks with strong performance.

Testifying before a House Banking subcommittee, Comptroller of the Currency Eugene Ludwig said that until community groups and lenders agree that "integrity" has been restored to the law, the safe harbor incentive for community-based lending will remain off the table.

Regulators Summoned

"I think it highly unlikely that we will come up with a safe harbor of any kind," Mr. Ludwig told Rep. Floyd Flake, D-N.Y.

The congressman called regulators to Capitol Hill Friday for an update on their plan to reform CRA. Also testifying at the packed hearing were Andrew C. Hove, acting chairman of the Federal Deposit insurance Corp.; Jonathan L. Fiechter, acting director of the Office of Thrift Supervision; and Fed Governor Lawrence Lindsey

Rep. Flake has introduced legislation to change the community reinvestment law. His changes would include creation of a safe harbor for banks with outstanding CRA grades.

The safe harbor provision would prevent regulators from considering community protests when weighing lenders' plans to merge or expand.

Not Ready to Compromise

At Friday's hearing, regulators urged Rep. Flake to hold off on his legislation, to give them a chance to make the law work by changing regulations. But Rep. Flake stood firm.

"I am not at the point of a compromise," Rep. Hake said. after the hearing. "But rather than going 100 miles per hour on the CRA bill, I'm going 90 miles an hour until I see what they're prepared to do on CRA."

At Friday's hearing, the regulators provided few clues to how they will transform CRA, but did suggest some of the approaches they are considering--and some they are not.

"I am virtually certain we will not have a system that involves quotas or a system that requires credit allocation," Mr. Ludwig said. Earlier this year, the agencies had considered establishing strict numerical standards by which banks would be judged.

Mr, Ludwig also suggested two means of increasing community involvement in lending. Regulators could ask banks and residents together to develop strategic plans that lay out lending goals. Or community groups could review loan applications that banks want to reject, and advise them on those they think should be approved.

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