Consumer and community activists yesterday criticized plans for restructuring the nation's banking industry, saying at a press conference in Baltimore that proposed legislation could weaken a law that has spurred banks to invest in housing and businesses in poor neighborhoods.
The Community Reinvestment Act of 1977 was designed to make sure that banks reinvest some of their deposits close to home and to stop a much-criticized practice of refusing to make loans in inner-city areas, known as red-lining.
But the banking industry is pressing to insert a provision in a bank reform bill that would exempt small banks from the Community Reinvestment Act.
Proposed amendments also would exempt banks from the prime penalty the act allows for ignoring community reinvestment. Under the amendment, the government would be unable to deny a bank permission to expand if the bank had had even a "satisfactory" CRA rating any time during the previous two years.
"No bank ever went broke because it lent too much money to poor people," said George N. Buntin Jr., executive director of the Baltimore chapter of the National Association for the Advancement of Colored People and president of the Maryland Alliance for Responsible Investment. The alliance works with banks to find ways to fulfill community reinvestment obligations.
"This civilization cannot survive the continuing deterioration of those at the bottom," said James W. Rouse, head of the Enterprise Foundation, an organization that builds low-income housing, and founder of the Rouse Co. Mr. Rouse said that profits and reinvestment can mix, pointing to small savings banks in Chicago and New York whose chief executives are on the Enterprise Foundation's board.
Advocates of community reinvestment have been especially concerned about the reform law because its overall thrust is to make U.S. banks bigger, in part so major U.S. banks can be more competitive with foreign competitors. Major Japanese and European banks tend to be much larger than their U.S. counterparts, and U.S. law restricts banks from entering many branches of business that are open to foreign banks.
Mr. Buntin said that community groups are trying to preserve the Community Reinvestment Act in its current form to "make sure that underserved communities don't get lost in the shuffle."
The amendments on reinvestment were first linked to a House of Representatives version of the bill in May. However, a House banking committee rejected the changes last week. But Sen. Connie Mack, R-Fla., and Sen. Richard C. Shelby, D-Ala., plan to introduce identical language during a Senate hearing tentatively scheduled for July, an aide to Senator Shelby said.
"If community banks do their jobs, what works for the bank works for the city," the aide said. "Smaller banks do a pretty good job of serving their lending area."
The aide said that small bankers believe the extensive record-keeping that the Community Reinvestment Act requires is a burden. An Alabama bank with $140 million in assets spends $140,000 annually on records to prove that it is complying with the act, they say.
The amendments would exempt banks with assets of $100 million or less from CRA reporting and record-keeping requirements if they are in a metropolitan area of 1 million or more people. Banks in less-populated areas would be exempt if they have less than $250 million in assets.