WASHINGTON - The comptroller of the currency's prediction that neither bankers nor activities would be pleased with regulatory reform of the Community Reinvestment Act appears likely to come true.

Community groups are warning that if the agencies follow through on their proposal to create significant exemptions for small lenders, activists will reconsider support of the initiative.

"It appears for the moment to be a retreat from present law for 90% of the industry," said Deepak Bhargava of the community group Acorn. "If that's where it ended up, that would be unacceptable."

Scrutiny for Large Banks

The agencies are considering giving banks with less than $250 million in assets a chance to opt out of tough scrutiny and new data disclosure facing larger lenders.

In contrast, lenders cheer efforts to ease standards for small banks. But they are uneasy about regulators' plan to rely on numerical analysis to gauge CRA performance and to require greater documentation from bigger institutions.

"There will be a lot of bankers who will fall off their chairs if there is additional disclosure, particularly for small-business lending," said James Chessen, chief economist for the American Bankers Association.

Regulators are considering asking large lenders to geo-code information about small-business and consumer loans. Bankers fear that could become a costly exercise.

"It makes no sense to continue to tie banks up with expensive regulation and then expect them to make more credit available to their communities," Mr. Chessen said.

Market Share Ratios

The big banks also would be required to calculate the ratio of their market share in low- and moderate-income census tracts with their total market share in their community. A ratio of greater than one would be consistent with outstanding performance.

"Anytime you have a formula for lending, that's just by definition credit allocation, any way you cut it," said Joe Belew, president of the Consumer Bankers Association.

Regulators have completed a draft proposal of their CRA reform, which requires lenders to serve low- and moderate-income parts of their communities. While they have not yet released a proposal for public comment, they have discussed it with lenders and community groups in recent weeks.

|Easy Out' Criticized

Community activists decry the proposed "easy out" for small banks.

"We know from our members across the country that some of these smaller institutions have the most egregious records in meeting community credit needs," said John Taylor, executive director of the National Community Reinvestment Coalition.

Some activists worry that the regulators may be trying to buy the support of small banks for other administration initiatives like interstate branching.

"I think this is a signal that the administration is comfortable with political solutions, as opposed to public interest," said Chris Lewis of the Consumer Federation of America.

Regulators have been discussing the possibility of appeasing critics of their small-bank exemption by developing a third tier - with different sets of standards for banks with assets of less than $100 million, those with assets between $100 million and $250 million and those with assets that exceed $250 million.

But that doesn't appear to appease community groups either.

"If the concept is flawed, then the number of tiers doesn't matter," Mr. Bhargava said.

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