Incentives in the new bank law to increase lending and services to the poor are not likely to be used because of insufficient government funds, the Consumer Bankers Association told its members in a recent newsletter.
The Bank Enterprise Act that was included in the Federal Deposit Insurance Corp. Improvement Act, passed on Nov. 27, offers insurance-premium discounts to banks that offer low-cost "lifeline" accounts to the poor or increase lending in distressed communities.
It allows insured banks to pay only half the average premium on deposits in lifeline accounts -lowf-fee or free accounts that are used primarily by the poor and students.
Making Up the Difference
But the consumer bankers' trade group noted that a qualifying clause to finance the inducement was added to the provision during the final House-Senate conference that produced the banking bill. It requires Congress to appropriate in advance the amount of the shortfall in the Bank Insurance Fund that would result from the incentive.
The money for the program would presumably come from "the same pot as low-income housing and other programs designed to help the poor," the CBA said, making it "unlikely that Congress will appropriate these scarce funds rather than continuing to assess institutions at the full rate."
The end result? Chances, he said, "are very small that banks will actually be able to take advantage of the reduced assessments."
Separately, the new law addresses several other issues pertaining community reinvestment, including requiring banks to notify customers and regulators at least 90 days before closing a branch.
Notice on Branch Closings
The bill also also exempts mortgage loan companies with less than $10 million in assets from having to comply with the Home Mortgage Disclosure Act.