The Community Reinvestment Act has been enforced inconsistently at national banks, according to the Treasury Department's Office of Inspector General.
Examiners from the Office of the Comptroller of the Currency have deviated from CRA exam procedures, failed to document results, and strayed from the examination schedule published each quarter, the government watchdog said in a May 28 report, obtained under the Freedom of Information Act.
"This resulted in examination inconsistencies, raising questions about the reliability of reported results and making comparisons of bank performance more difficult," wrote Richard B. Calahan, Treasury's deputy inspector general.
The inspector general's office reviewed exams of 63 small national banks conducted from Jan. 1, 1996, through the end of the first quarter of 1997, the first 15 months under substantially revised CRA rules. The banks were located throughout the country.
Officials at the comptroller's office downplayed the report. "These were the first exams we did," said Christopher Lewis, a senior adviser to the comptroller. "Could we have done them better? Yes."
He said the new procedures represented a fundamental shift in how examiners conduct CRA reviews. As examiners received more training and experience, the inconsistencies disappeared, Mr. Lewis said.
"We were all learning how to implement this very rapidly in 1996," he said. "I would suspect other agencies suffered similarly."
Treasury's inspector general found that examiners frequently failed to follow the OCC's examination rules. "In each of the 63 examinations that we reviewed, we found at least one instance in which the methodology used by OCC examiners did not fully adhere to the bureau's own guidance," the inspector general's office said.
For instance, examiners in 13 banks based their rating on outstanding loans, rather than on loans originated. Also, they failed to consult community leaders in 12 reviews.
The inspector general's office also found that the terminology in the performance evaluations was inconsistent from exam to exam. For instances, the term "reasonable" meant both "exceeds requirements" and "meets requirements."
Also, examiners failed to fully document their findings in 92% of reviews. For instance, they often based their ratings on a loan sample. Yet they failed in 18 of the reviews to document the number and size of loans in the sample.
The OCC also deviated from its published schedule of CRA exams. It conducted several reviews in 1996 that were not listed on the quarterly schedules. Also, the agency published an erroneous schedule in January 1997.
The four banking and thrift agencies overhauled the CRA rules in April 1995, adopting a system that rewarded performance over paperwork.