NEW YORK -- A proposal by New York's banking agency promises to relieve the state's small banks - and possibly small banks nationwide - of a big paperwork burden.
The proposal, which would apply to state banks holding up to $150 million of assets, was part of a sweeping regulatory package unveiled by State Banking Superintendent Derrick D. Cephas on Oct. 7.
Designed to revise New York's Community Reinvestment Act, an anti-red-lining law, the proposal would allow small banks to skip a quantitative analysis of their lending if they meet the state's definition of a "community bank."
Warren W. Traiger, a Manhattan attorney who was among those empaneled by Mr. Cephas to help draft the package, says the small-bank proposal might be picked up in revisions to the federal reinvestment act.
Sees Weaker Ratings as Result
However, a spokesman for New York's small banks says the proposal would produce weaker ratings for any number of small institutions.
"I think, as I review the proposal, that it might not be in our members' best interests to qualify for the state's definition of community bank," says John L. Pritchard, executive director of the New York Independent Bankers Association.
The proposal defines community banks are retail institutions holding less than $150 million of average assets. A bank also is so defined if 65% of it deposits are in loans, and 65% of the loans have been issued to residents of its service area.
Banks meeting this definition will be issued a "satisfactory" reinvestment act rating, which will remain in effect until a formal, qualitative exam shows the bank should have a different grade.
Banks with assets above $150 million would be rated "satisfactory" if examiners determine that their loans represent a 20% to 30% investment in their service areas.
Banks which invest more - and which pass the ensuing qualitative exam - will be rated "outstanding."
A Debate on Grades
Mr. Pritchard says loan-to-deposit ratios at the vast majority of small New York banks are very high, and argues that such banks, too, should have a shot at starting their qualitative exams with an "outstanding" rating.
"If you start with a |satisfactory,' you might be ratcheted up to |outstanding,' but it just doesn't seem realistic to start with a |satisfactory,' if you had an opportunity to start with the highest grade," Mr. Pritchard says.
Although the small-bank proposal is designed to ease the paperwork burdens of a quantitative analysis, Mr. Pritchard does not consider those burdens significant.
Claire Sykes, spokeswoman for the New York Banking Department, says the burdens are not a big deal "if your data's in your computer. Then it's just a question of doing the math."
|It Isn't Cheap or Easy'
However, Anthony Abate, senior vice president of North Fork Bank and Trust Co., Mattituck, thinks small banks would "have a hell of time to set up the computer capability to handle the quantitative analysis.
"They would need an adequate computer system, the software for geocoding, and the codes themselves. It isn't cheap, or easy, for small banks."
Mr. Abate, who heads reinvestment act programs for North Fork, used to be a state bank examiner. He believes small banks would be treated fairly in their qualitative exams.
Comment Period Ends Dec. 15
New York's proposal is the first to suggest formulas for assessing the adequacy of community reinvestment. Public comment on it ends Dec. 15, and it could be issued after the January meeting of the Banking Department's board.
The New York proposal, and efforts by federal banking agencies to reform the national law, are on parallel tracks, says Mr. Traiger. "I don't see New York doing anything radically different from federal reform."
There are 94 banks in New York with assets of less than $150 million. Mike Smith, executive director of the New York State Bankers Association, does not believe the small-bank proposal is unfair to his larger members, but adds, "We originally thought about suggesting $1 billion for a cutoff, then settled on $500 million in our public comments."