Lenders Wary Of Revised Federal Community Banking Regulations

Community banking in the Inland Northwest may not fit the mold regulators are shaping for bigger, more complex markets, area bankers said Wednesday.

Yet the cost of compliance with new federal regulations will be particularly burdensome for small local banks, which must hire extra staff to compile required paperwork, they said.

About a dozen lenders met with officials from the Federal Reserve Bank and other agencies to discuss their proposed changes in the 18-year-old Community Reinvestment Act.

President Clinton requested the modifications in response to banker complaints about the burdens created by existing regulations.

The law established a rating system that assesses a bank’s efforts to serve all segments of the population in their communities.

Banks considered unsatisfactory may be barred from expanding or buying another financial institution.

Jeff Nugent, a consultant for the Fed, said the modifications that take effect Jan. 1 are intended to deemphasize paperwork and stress results.

For example, regulators will compile data on banks’ compliance records rather than leaving that responsibility to the lenders.

In Spokane, community housing advocates have said the act has prodded banks into making loans that put hundreds of low- and middle-income families into homes.

Nugent said banks that have embraced the act as a way of improving their lending practices have achieved outstanding results, while those looking to do only the minimum fare poorly.

But the bankers said the requirements amount to federal directives as to whom gets credit. And the industry may be swapping paperwork for uncertainty if regulators do not set benchmarks that will indicate what constitutes satisfactory performance, they said.

“It’s going to rely to a great extent on examiner judgment,” agreed Kelly Walsh, an official with the Federal Reserve Bank in San Francisco.

She said compliance guidelines should be available this fall.

Washington Trust Bank attorney Cal Cathcart said the information available so far is too vague. “It has the potential to be very unfair,” he said.

Washington Trust has received an outstanding CRA rating in the past.

“I don’t need a regulator to tell me what are desirable lending characteristics,” said Stan Steele, a Bank of Pullman lending officer.

The bank serves a relatively homogenous area, he said, yet two workers have been added in the last two years to handle CRA and other regulatory documentation.

And almost half his own time is consumed dealing with government requirements instead of bank matters, Steele said.

“It all costs money,” he said, noting that Bank of Pullman recently received a satisfactory CRA rating.

, DataTimes