WASHINGTON - The Clinton administration, unveiling its long-awaited plan to reform the Community Reinvestment Act, proposed Wednesday to dramatically change the way banks must document their compliance with the law.
The proposal, which regulators have been devising since July, would establish starkly different sets of rules for large and small lenders.
Small banks would generally see their paperwork requirements drop significantly.
Large banks, on the other hand, would face more-specific rules for measuring lending performance and have to file additional data for small-business, consumer, and other loans.
And for the first time, banks with the worst performance ratings would be subject to civil money penalties and other enforcment actions.
The plan was announced at the White House by Treasury Secretary Lloyd Bentsen, White House ecomomic adviser Robert Rubin, and top banking regulators. It will be put out for public comment before the regulatory agencies take final action.
|Install Some Sanity'
Mr. Bentsen characterized the initiative as an important element of the administration's efforts to increase the flow of credit throughout the country. And he said the plan would install some sanity" in community reinvestment rules, which banks have criticized as laden with red tape.
"In a nutshell, what we're proposing is to make it easier for lenders to show how they're complying with the Community Reinvestment Act," Mr. Bentsen said. "Banks now will have very clear, quantitative standards by which their compliance with the law can be measured."
Also speaking at the White House, Comptroller of the Currency Eugene A. Ludwig said the plan would "channel billions of dollars in new credit into America's distressed communities, while at the same time reducing unnecessary burdens on the banks."
Industry Reaction Mixed
Both the banking industry and community groups hailed the proposal as a dramatic step forward Wednesday, but complained vigorously about many important elements of the plan.
In particular, the banking industry is most concerned about the new data-collection requirements. In contrast, activists are furious that small banks appear to get an easy ride under the proposal.
"If properly implemented this could be a significant benefit to banks," said Donald Ogilvie, executive vice president of the American Bankers Association.
"But we have some serious concerns about the added data collection requirements. We're going to want to work closely with regulators to minimize extra reporting requirements."
"Net, net it's probably something of a gain, but it's not an un-ambiguous improvement," said Brian P. Smith, director of policy for the Savings and Community Bankers of America.
Last July, President Clinton directed the banking agencies to revamp regulations guiding CRA, to ease paperwork burdens facing banks, provide more clarity about what is expected of them, and focus the rules on actual performance.
The community Reinvestment Act requires banks and thrifts to serve their entire communities, including low-income and moderate-income areas. While the law itself is quite short, regulations guiding it have grown quite large and complex.
Bankers have repeatedly complained that with its huge documentation requirements, CRA has grown to be their largest compliance burden. And community activists have chastised regulators for not being tough enough in judging lender performance.
|Clear Change in Course'
Regulators have come under heavy criticism from Congress as well, for not taking the law seriously. Senate Banking Committee Chairman Donald W. Riegle Jr. on Wednesday hailed the proposed CRA reform a "clear change in course by the banking agencies."
And while expressing concern about the relaxed treatment of small banks, House Banking Committee Chairman Henry B. Gonzalez praised the plan as well.
"The Clinton administration's plan is not the magic cure for the widespread disinvestment in our country," he said. "But by emphasizing actual results over paperwork and process, it takes a significant step toward making the CRA work better."
While the White House released the proposal Wednesday, it will not be formally published for comment until both the Federal Deposit Insurance Corp. and Federal Reserve boards approve them.
The FDIC will vote Thursday and the Fed on Friday. Both are expected to approve the proposal, but the Fed is expected to complain bitterly about some aspects of the plan.
60 Days to Comment
Once it is published, the public will have 60 days to comment on the plan. Mr. Ludwig said he expects the agencies to publish a final rule by June.
If adopted as proposed, the provisions would begin taking effect in July and the plan would be fully phased in by July 1995, a timetable generally recognized as ambitious.
According to the 85-page proposed rule, all banks with assets greater than $250 million will be required to collect and make public data on the loans they make to companies that have less than $10 million in sales.
Data on consumer loans, except for credit card and auto loans, will also be required. Data on housing loans similar to those required by the Home Mortgage Disclosure Act would be required under CRA as well.
This data would be aggregated according to census tract but not by ethnic background.
In an interview Wednesday, Federal Reserve Governor Lawrence B. Lindsey conceded that under the proposal many larger lenders would see their documentation requirements increase.
"We hope that increased burden is offset by greater clarity and certainty," he said.
Under the plan, independent banks with assets less than $250 million will will be held to a much less rigorous standard than other banks. As long as they meet five straightforward criteria, they will be guaranteed at least satisfactory ratings.
These include: loan-to-deposit ratios; share of lending that is done locally; mix of loans, by product and by income level; fair lending record; and complaints from community groups.
Up to 85% of the industry - representing 15% of all bank assets - would be fall into the small-banks catagory.
While praising this plan, Independent Bankers Association of America president James Lauffer said he was "troubled" by benchmarks set up for satisfactory performance. For example, regulators suggested that a 60% loan-to-deposit ratio would be consistent with a satisfactory rating.
Bigger banks, however, will face a much more complex set of rules. Their overall CRA grades will comprise their performance in three areas: lending, bank services, and investments.
Performance will be judged according to a series of quantitative measurements, supplemented by more-subjective examiner evaluation.
Market Share a Key
Lending performance would carry the heaviest weight under the new plan. One key lending measurement would would be the relative market share of a lender's loans in low and moderate income census tracts compared with other areas.
In addition, the dispersal of an institution's loans throughout its entire community would be measured.
Performance in the bank services category would be judged primarily by branch number and location. This rating would influence the lender's overall score only if its services are deemed outstanding or substantially noncompliant.
Investments would be measured by activity like equity investments in community development corporations, low-income credit unions, and minority owned financial institutions. While strong performance could improve the overall CRA grade, a poor investment record could not hurt it.