William Isaac's commentary on Sen. Phil Gramm's opposition to the Community Reinvestment Act and its effect on financial modernization ("In Reform Bill Talks, Gramm's CRA Stance Merits a Hearing," Sept. 30, page 6) is deeply flawed by his reliance on information that Sen. Gramm has misleadingly propagated.

Mr. Isaac states that "more than $9 billion has been pledged (as part of CRA agreements) to community groups protesting mergers...." This mischaracterization of information given to Sen. Gramm's staff by the National Community Reinvestment Coalition is typical of the kind of distortions that are being advanced by the senator.

In fact, the $9.5 billion figure represents the amount in CRA agreements and unilateral pledges in 1997 and 1998 that banks committed as loans, grants, and investments in all nonprofit community organizations for home-ownership counseling, small-business technical assistance, and other services that help banks increase their business in low- and moderate-income communities.

This $9.5 billion pays for such things as service contracts with a wide variety of community groups (almost all of which have never participated in CRA protests or entered into CRA agreements). The distinction is important because Sen. Gramm is fond of implying that this $9.5 billion has been extorted by groups and represents a pool of money for their own use.

Using these figures in the way that Sen. Gramm and Mr. Isaac do is about as nonsensical as claiming that some large percentage of bank income goes for "cash payments" to newspapers, television stations, and other vendors, without mentioning that the money is being used to buy advertising.

Mr. Isaac further repeats Sen. Gramm's misleading claim that 4,000 small banks and S&Ls "have undergone more than 16,000 CRA examinations since 1990, and only three were found to be substantially out of compliance."

It is important to note that "substantial noncompliance" is the worst of four CRA ratings and is given only in cases of complete disregard of the law. A more relevant number would be the total number of "substantial noncompliance" and "needs to improve" ratings assigned to small rural banks. At a recent conference committee meeting, Sen. Paul Sarbanes said he had checked with all the regulatory agencies and found that 466 small institutions had received these two ratings over the time period discussed.

Mr. Isaac says that Sen. Gramm did his homework. I beg to differ. What Sen. Gramm has done is send his staff on an enormous snipe hunt, demanding tens of thousands of pages of documents from regulators and demanding access to the agreements from banks and community groups while failing to produce any credible evidence that CRA is broken and needs his cure.

The real question for the financial services industry is whether they are going to continue to jeopardize financial modernization by following Sen. Gramm down this dead-end road or are going to actively support the modernization of the Community Reinvestment Act as an integral part of any financial modernization bill.

Hubert Van Tol

Sparta, Wis.

(Editor's note: Mr. Van Tol is president of Bank Watchers, a consulting firm, and co-chairman of the legislative/regulatory committee of the National Community Reinvestment Coalition.)

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