Loans that qualify for credit under the Community Reinvestment Act have been scarce in Old National Bancorp's rural markets, but new federal rules scheduled to take effect next month may change that.
Like most banking companies, the $8.7 billion-asset Old National, of Evansville, Ind., must show it is meeting the credit needs of the communities it serves, including low- and moderate-income areas and places in need of economic development. Mary J. Purcell, Old National's CRA and fair-lending manager, said it is hard to meet the criteria in rural markets, because few of them meet the CRA's definition of "distressed" or "underserved."
"In our rural areas, we find limited opportunities to get things that qualify under the old regulations," Ms. Purcell said. "We may do the loans, but we don't get credit under the CRA exam."
As the rules stand now, loans must be made in low- and moderate-income census tracts to be eligible for CRA credit. This means most CRA-eligible loans are made in urban areas. However, the rules that will go into effect Sept. 1 will make loans in rural areas with low population density or high unemployment, poverty, or population loss eligible.
Robert Mooney, the chief of CRA and fair-lending policy for the Federal Deposit Insurance Corp., said feedback from banks and community groups led to the changes.
"We had been hearing from banks in largely rural areas or banks outside of rural areas that lend in rural areas that our current definition of community development did not include all rural areas in need of community development," he said.
The Federal Financial Institutions Examination Council will publish a list of eligible rural areas on its Web site. Mr. Mooney said the list would be available before Sept. 1.
"For planning purposes we are listing these on the Web site because banks would like to know where they are in advance of an exam, so they can engage in activities in those areas," he said.
Industry experts say the changes could stimulate rural development.
John M. Blanchfield, the director of the American Bankers Association's center for agricultural and rural banking, said the changes make more loans in much of the Great Plains eligible for CRA consideration.
"This could give the larger banks a bigger incentive to take a second look at rural America," he said.
Robert G. Rowe, the regulatory counsel for the Independent Community Bankers of America, said the changes would make rural lending appealing for all banks and give community banks credit for community development work they have been doing all along.
The $4.1 billion-asset Gold Banc Corp. Inc. of Leawood, Kan., has been selling off rural branches and focusing on metropolitan markets. But Frank Oligbo, Gold's director of community development, said it still has some rural locations and would like credit for lending there.
"The key thing is not to make loans just because they qualify for CRA, but because they are good business - if they do qualify for CRA, that's bonus points," Mr. Oligbo said.
The new rules will also probably reduce banks' regulatory burden. Bankers say expanding the pool of eligible loans will make it far easier for them to document that they are meeting their CRA obligations.
Mark Sutko, the president and chief executive officer of the $386 million-asset Platte Valley State Bank and Trust Co. of Kearney, Neb., said reducing the amount of work it takes to show CRA compliance may be the biggest benefit for banks.
"As this unfolds, if it decreases the amount of time that banks need to spend on regulatory issues, where it can be very time-consuming and labor-intensive to document that the bank is serving the community, then everyone is in favor of that," Mr. Sutko said.
