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WASHINGTON, D.C. — America’s Community Bankers has told Senate Banking Committee Chairman Phil Gramm (R-Texas) that it has "misgivings" about the manner in which the Community Reinvestment Act is implemented, including the treatment of "investments."

Responding to a request by Gramm for information, ACB said that while it supports the intent of the CRA, "we are on record with the federal banking agencies about our misgivings regarding its implementation, the examination procedures, the resulting and extensive regulatory interpretation of what is a very simple statute, and the inherent regulatory burden it continues to impose on our members."

ACB said the existing CRA regulation "disadvantages community banks" and expressed concern that community banks will face continued problems complying with the existing CRA regulations. To place community banks in a regulatory scheme that evaluates them like very large, multi-branch, multi-state banks is "grossly unfair," ACB said.

ACB provided the following insights from interviews with its members:

– Community banks with assets of more than $250 million — the cutoff for using the small bank streamlined CRA examination procedure — are not large enough to compete with the very large institutions for CRA investments. These smaller "big" institutions face increasing difficulty in achieving even low "satisfactory" ratings under the large bank investment test, ACB said.

"Our members have told us repeatedly that documenting efforts to find and make these investments does not count at all with the CRA examiners; the investment must actually be made," ACB said.

– Small institutions, which are eligible for the streamlined examination based mostly on lending, may have a better chance at achieving an "outstanding" rating if they choose to be examined under large institution guidelines — but with additional regulatory burden. Some examiners have informally told members that it is almost impossible to achieve an "outstanding" rating under the streamlined procedure.

– ACB members have reported inconsistencies among the agencies and among examiners in the same agency in granting CRA credit for investments. Some examiners will allow credit for a wide variety of investments, others for only more traditional community investments, such as school and municipal bonds. ACB said the industry would benefit from a clearer definition, including examples of qualifying investments, and greater consistency in applying the definition.

– Institutions may seek smaller investments which can be made annually for maximum CRA credit because one-time larger investments with continuing benefit to communities are only counted once. ACB urged amending the rules to allow multi-year CRA credit for such investments.

– The impact of investments on low- and moderate-income persons may not be readily apparent to examiners, requiring banks to maintain more documentation to earn CRA credit.

– The quality of investments should be as important as the number and amount of investments. A specific target amount or percentage for measuring the extent of an institution’s investments should be established.

– Institutions with savings association charters are at a disadvantage to commercial banks because these thrifts are not authorized to invest directly in community development investments, making it impossible to incorporate community development activity into the investment test.

A copy of the comment letter is linked.