Federal regulators are trying to figure out how the Community Reinvestment Act would be applied in an era of on-line banking.

"We recognize this is a major issue, and we are struggling with that question," said Stephen M. Cross, deputy comptroller for community and consumer policy.

While creating policy at this stage of on-line banking's development probably would be "premature," Mr. Cross said one option would be to modify CRA rules to deal explicitly with alternative delivery systems.

"We could change the definition of assessment in regulation, or we could establish special assessment methods for banks that make loans via the Internet or other alternate delivery methods," he said.

Another possibility would be to define an assessment area exclusively by where a bank makes loans, rather than by where it maintains offices, he said.

The central problem in applying CRA to Internet banking is that the current regulations are written for the physical world. They require that banks provide loans and deposit services to a broad spectrum of customers in the communities they serve.

But because communities served by on-line banking are not defined geographically, assessing a bank's CRA compliance can be tricky.

"The issue of assessment area is an arcane one," Mr. Cross said. "Does the concept of an assessment area, as laid out in our regulations, give us enough flexibility to conduct CRA examinations that are meaningful at Internet banks whose customers are geographically far removed from the banks' branches?"

The issue is getting more attention because consumers are embracing on- line banking as never before. According to Forrester Research of Cambridge, Mass., at the end of 1997 about 2.5% of U.S. households conducted banking with a personal computer. About 4% of households will bank on-line by the end of this year, and nearly 20% will do so in 2002, Forrester projects.

The emergence of banks that conduct virtually all their business on-line is complicating the application of CRA.

"Where you have an established branch undertaking electronic banking, regulators are looking to the assessment areas where they do have branches," said V. Gerard Comizio, a partner at the law firm of Thacher, Proffitt & Wood. "For those banks which are all-electronic, the assessment area is defined where the home office is."

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