STOCK QUOTES     More market data...

Community-service test may ease for banks

By Melissa Allison
Seattle Times business reporter

E-mail this article Print this article Search archive Most read articles Most e-mailed articles

The nation's top regulator of thrifts has proposed giving companies like Washington Mutual more latitude in how they are rated on complying with the Community Reinvestment Act (CRA), which Congress passed in 1977 to ensure banks and thrifts serve low- and moderate-income communities.

The Office of Thrift Supervision (OTS) wants to reduce the act's regulatory burden. Already it has exempted thrifts with less than $1 billion in assets from the most rigorous reporting rules.

The Federal Deposit Insurance Corp., which regulates some banks, wants a similar change.

Big thrifts and banks are graded on how well they meet three criteria in low- and moderate-income neighborhoods: lending, services and investments. Now the OTS is circulating a plan that would allow thrifts with assets over $1 billion to decide how heavily they want to weight each part, as long as lending does not fall below 50 percent of the total test.

Community activists, worried that other CRA regulators such as the FDIC will follow suit, wring their hands at the idea the industry might have to answer only for its lending practices, and that bank services and investments will be left behind.

"You're taking away things that are already there, and what's wrong with what's already there? It's been effective, having a positive effect on these communities," said Michael Rubinger, president of Local Initiatives Support Corp., a community-development support group in New York.

Rubinger is particularly worried about the investment part.

"Banks have been major investors in the low-income-housing tax credit, and that is in part because of CRA," he said. Those investments go toward low-income rental housing.

Allowing banks to eliminate the investment test "would have a devastating effect on affordable rental housing," Rubinger said.

But Victor Karpiak, president of First Savings Bank of Renton, welcomes the possibility of regulatory relief from the FDIC. First Savings, with assets of $780 million, finds the investment test "a little tough," Karpiak said.
 
"You have to purchase securities which are CRA-qualified, and a lot of institutions need to meet that goal, so it's caused the pricing of that to be outrageous," he said.

Some activists fear banks would stop opening branches in low-income communities if they were allowed to eliminate the service portion of their CRA exam.

"Historically, financial institutions would not put branches there except under pressure, and CRA was the leverage," said Bob Gnaizda, general counsel of the Greenlining Institute, a California-based advocacy group that focuses on inner-city economic development.

CRA ratings matter to banks for several reasons. Large banks and thrifts involved in mergers often face scrutiny of their community-reinvestment efforts, sometimes in public forums arranged by regulators deciding whether to approve a merger. For other institutions, a low rating can cause public embarrassment and more frequent visits from regulators.

Bob Davis, managing director of government relations for America's Community Bankers, a national thrift and bank association, disagreed that institutions would avoid having branches in low-income communities if CRA rules change.

"If you're going to serve communities and you're going to have loans there, you have to have a physical presence," Davis said. "People aren't going to ride buses from low-income communities to get to a branch."

Indeed, said Kathryn Williams, a director of Seattle-based HomeStreet Bank and its CRA officer, "I'm not sure we'd be doing much differently" if that bank became eligible for regulatory relief.

"I know many community organizations are concerned they will not be receiving services and investments and lending from all financial institutions, but frankly some banks are better at one aspect than another," Williams said.

Michael Bush, CRA officer at Washington Federal Savings, a $7.4 billion-asset Seattle-based thrift that is regulated by the OTS, said his institution has always focused more heavily on the lending part of the CRA test.

The bank has not decided whether it would officially shift its emphasis toward lending if given the chance, but that's "something we'd certainly consider," Bush said.

Officials at Washington Mutual, the nation's largest thrift with $288.8 billion in assets as of Sept. 30, say they are still evaluating the proposal by the OTS, which is taking comments until Jan. 24.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com