WASHINGTON - The New York State Banking Department will unveil a sweeping plan to revamp enforcement of its state Community Reinvestment Act next month.

The proposal, which has been discussed in recent months by New York Banking Superintendent Derrick D. Cephas, will include rigorous, quantitative measures for CRA grades and a safe harbor for banks with the best records.

Bankers and community activists, while applauding attempts to improve the law, have complained about many elements of the plan.

Cephas Sees Plan as a Model

Testifying on Tuesday before a House Banking subcommittee, Mr. Cephas expressed optimism that the industry and public advocates will embrace his plan. He also said he hopes the proposal will be a model for CRA revisions by other states and the federal government.

"There is little possibility for meaningful improvement in the implementation of CRA under the current system, notwithstanding the significant effort of the banks, community groups, and regulators," Mr. Cephas said.

The Clinton administration is reviewing CRA at the federal level, but has introduced no plan. But the President's aims - increasing community lending while providing banks with more concrete guidance on how they will be judged - mirror those in the New York proposal.

Setting Standards

Mr. Cephas said his plan will be formally introduced on July 22 and released as a final rule in October. It will apply to all state-regulated banks. Because New York has a CRA law, state-supervised banks are evaluated by both state and federal regulators.

Under the New York plan, the state would provide a list of about 20 broad categories of lending that relate to CRA. Banks also would be able to petition the state for advance commitments for CRA credit.

The plan also would set specific standards for CRA grades, and each would have thresholds.

Safe-Harbor Provision

Counterbalancing the tough rules would come a carrot: Banks with three consecutive "outstanding" ratings would be granted safe-harbor protection from protests on expansion applications.

While the New York State Bankers Association cheers the superintendent's efforts, top officials say they are troubled by the possibility of CRA grades based on rigid formulas.

Public advocates have other concerns. They think providing banks with a safe harbor would limit community groups' power.

"The proposal is done with good intentions, but we draw a real line in the sand when it comes to safe harbor," said Deepak Bhargava of the community group Acorn.

Friendly Reception

Mr. Cephas' plan was warmly received at the Washington hearing. Rep. Floyd Flake, D.-N.Y., said he intends to introduce legislation that would improve CRA, relying on some of the principles in the New York plan.

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