In an effort to address a perceived weakness of community banks, the Clinton administration has proposed a series of reforms on Capitol Hill while encouraging others indirectly.

Even though many of these actions (CRA is on top of everyone's list) are intended to be in the best interest of lower- and moderate-income Americans, the proposals may actually adversely affect many Americans and the banks that serve them.

Right now, the House Banking Committee is considering legislation that would create a nationwide network of 100 community development banks. The proposed fived-year, $400 million program, spelled out in the Clinton administration platform, "Putting People First," is intended to "provide small loans to low-income businesses and entrepreneurs in the cities, and help mobilize private lenders.

Job Is Being Done

However, missing from the Clinton platform and from proposed legislation is the fact that community banks, both publicly held and in mutual form, are already doing the job -- and far more efficiently as well without spending one tax dollar. Recent statistics from the Community Bankers Association of New York State show that New York community banks alone spent more than $1 billion toward local affordable housing and community last year.

Compounding the problem is another misperception shared by a somewhat hostile regulatory environment and financial community believing that mutual savings banks are run by lazy governing boards and unresponsive management. These same government and financial community officials see the answer to these perceived (but unreal) problems to be conversion from mutual to public stock ownership.

A Tale of Brooklyn

One case in point is my institution, Independence Savings Bank in Brooklyn, N.Y., founded in 1850 to serve the underserved working class and immigrants. Thd directors of Independence, New York's largest mutual savings institution, and its management have the opportunity to make millions to take the bank public. Independence's strong balance sheet and $2.5 billion of assets have attracted speculators from across the country bettIng that this bank would finally go public.

Independence has no plans to do so, as it believes that it would not be beneficial to those that the Clinton administration is trying to help. Many mutual savings and mutual holding companies share this viewpoint.

Win-Win-Win Solution

To overcome the "lazy mutual" perception and indeed to sharpen focus on community services, there is another concept that offers a win-win-with solution. It will, perhaps, have more horsepower than the Clinton proposals.

'Modern mutuality,' borrowing from the private form of stock ownership, is one potentially productive and beneficial alternative to the mutual (none-quity) and public stock conversion for thrifts.

Allow mutual thrifts and thrift mutual holding companies to issue private stock only to depositors, employees, and governing boards in a manner consistent with current public stock issuance guidelines and only at book value.

Although possibly difficult to administer, this concept has the following advantages:

* It brings in ownership attitude and discipline to the institution.

* It ties in the community with the bank employees and directors for mutual gain.

* It offers a competitive product (private stock) which, if well managed, will become a reason to form the required relationship with the offering institution.

* It mitigates some of the risk to deposit insurance funds.

* It avoids discounting the stock at conversion for unfair gain and takeover of surplus.

As banking committees explore various ways to protect and enhance community banking this powerful and yet simple concept should be part of the solution. Supporting those community banks with modern mutuality as an option, rather than the $400 million community legislation, may also save the taxpayers some money.

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