A group of West Coast bankers, seeking to capitalize on the anti- regulatory climate in Washington, is pushing for federal legislation to exempt minority banks from the Community Reinvestment Act.
The Western Independent Bankers, a regional trade group of community banks, hopes to insert the measure into the banking regulatory relief bill to be introduced in the House and Senate banking committees, probably this week.
The issue of minority bank compliance with CRA has been a small but hotly contentious one in the broader debate over CRA. In recent years, minority banks in California, particularly Asian banks, have been repeatedly criticized by federal regulators for catering too exclusively to their own ethnic group. Banks controlled by blacks and Latinos have similarly taken heat over noncompliance with CRA.
But minority bankers say that CRA's lofty intentions are punishing a class of community banks for fulfilling their mission to serve urban populations of minorities often ignored by majority banks.
The measure being considered is different from current proposals to exempt smaller community banks in that it would exempt a whole class of banks, regardless of size.
"Community banks whose purpose is to serve an ethnic community should not be punished for that," said Nancy Sheppard, executive director of the Western Independent Bankers, which is focusing its legislative affairs effort on the minority CRA exemption. "People haven't paid much attention to this issue, but we feel it's an important one for the industry and communities that are served by these banks."
"It makes sense for minority banks that were originally chartered to focus on providing banking to minorities to be exempt" from CRA, said Dominic Ng, chief executive officer of East West Federal Savings Bank in Los Angeles. Mr. Ng is the president of the National Association of Chinese American Bankers, which has pushed for CRA reform to take minority banks into account.
Because Asian communities frequently are close-knit, Asian banks can have a particularly hard time attracting customers outside their ethnic group.
"If we look at CRA, the whole idea of the law was to make sure all people have equal access to bank credit," Mr. Ng added. "Without our banks, whole communities would not have access to credit at all."
A study of CRA evaluations of banks in California, where there are 35 Asian banks, found that minority banks are four times as likely to receive a poor CRA grade than California banks as a whole. Community reinvestment experts cite minority bank problems with CRA compliance as the main reason California has consistently ranked as the state with the worst CRA compliance.
Yet, critics say that such a narrow exemption for CRA brings the debate to a new philosophical level. Such interpretation could lead to other narrowly defined banks being exempted from CRA, and some argue that it could lead to banking being a race-based business in urban areas where minority banks proliferate.
Nonetheless, the Western Independent Bankers feels that its proposal fits in with the regulatory relief mood in the newly Republican-controlled Congress. Western Independent's lobbyists have been trying to convince Sen. Richard C. Shelby, R-Ala., to write the proposal into the battery of regulatory relief bills he soon will present to the Senate Banking Committee, of which he is a member.
"Forcing these banks outside their market is counterintuitive and threatens their viability," said David Jacobsohn of the Washington firm Verner, Liipfert, Bernhard, McPherson and Hand, which is Western Independent's lobbyist. "How can we find fault with them for doing exactly what they were chartered for? It's unfair."
According to Mr. Jacobsohn, the proposal would designate minority banks as those that qualify for the Treasury Minority Deposit Program. To be eligible for the program, a bank has to be at least 50% owned by minorities and at least half of its board must be minorities.
The program is available to all minority financial institutions. Participants are eligible to receive low-cost demand deposits from government entities and large corporations. Under the Western Independent Bankers proposal, a bank would not be required to participate in the program to be eligible for the CRA exemption, just meet its criteria.
Treasury said 164 banks currently participate in the program, but more than 300 are eligible.