Rep. Kennedy Defends CRA Move

Says Amendment Will Ensure New Units' Compliance

When it comes to putting teeth in the Community Reinvestment Act, Rep. Joseph P. Kennedy 2d, D-Mass., is master of the game. Most recently, he won a subcommittee vote on an amendment that would impose additional CRA requirements on banks that want to branch interstate.

The Kennedy amendment, which may be considered by the full House Banking Committee this week, establishes the concept of "forward commitments."

In an interview last week, Rep. Kennedy told the American Banker's Robert M. Garsson that such advance lending commitments are needed to make sure banks don't channel credit out of small communities.

American Banker: Some people argue that bills like yours assume banks are public utilities. Is that fair? Joseph Kennedy: All we are saying is that credit has to be provided to communities of the nation in order for those communities to survive. Banks are viewed by the government as special institutions -- because of the direct access to taxpayer dollars -- to provide the necessary credit for businesses to survive and homeowners to be able to live..

AB: Doesn't CRA lending conflict with safety and soundness? JK: CRA is probably the most safe and sound investment you can find. Every major study suggest that home mortgage loans and small business loans are the safest investment in U.S.

AB: If they are such good loans, why don't banks make more of them? JK: Because they're not sexy, because they have high transaction costs. If you're running Citicorp, they don't even set up banks in these communities. They would rather take their money and put it in the more expensive, wealthier suburbs, rather than down in the inner city.

AB: Your amendment requires a forward commitment. CRA has always hinged on past performance rather than promises of future performance. JK: Yes, but this is the first time these institutions are going to be able to go interstate, which is the key. Without a forward commitment, there is no guarantee that an institution won't be able to go into a community, suck out the deposits, and put them back into some investment that has nothing to do with the community.

AB: You won by just one vote. Do you think you can do better with the full committee? JK: Yes. It would appear to me that we have a better mix on the full committee. But you never know with that committee. And if not, we'll just take it to the House floor.

AB: Why did the subcommittee pass your amendment, which appeared to toughen up CRA, and then adopt a separate measure that exempts small banks from the act? JK: Members of Congress feel banks that are going to get these new powers should be held to a reinvestment strategy. They feel on the other hand that there is some harassment in CRA.

AB: Community bankers say they should be exempt because their whole business is community reinvestment. JK: I think this whole issue is kind of a sham. You have 14,000 banks taking the exam and only nine fail. How hard a test can it be? I think banks have come to view it as a gnat buzzing around their head, rather than a serious threat to their business. And if they can swat the gnat, they will.

PHOTO : Rep. Joseph P. Kennedy 2d

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