 |
Finding a Bank with a Social Conscience
By Jill Terry
Can we expect banks to demonstrate a social conscience?
Yes, thanks to a federal regulation implemented by the Community
Reinvestment Act (CRA). Moreover, a bank's performance under
this regulation is public information. If you'd prefer to
bank with good corporate citizens, you have the means to comparison
shop among banks to find one with a high CRA rating.
The Power and Purpose of CRA
In 1977, CRA was enacted to encourage banks to better serve
the low- and moderate- income communities in their neighborhoods,
primarily by extending credit. The trouble was that regulatory
agencies determined that almost anything satisfied the then
CRA's rather spineless requirements. To make matters worse,
a bank's CRA rating was confidential, creating little impetus
for a bank to improve its performance. In 1995, Congress added
a backbone to CRA by articulating specific requirements, designing
a quantifiable rating system, and making every bank's rating
available to the public. Today's CRA is a much truer measurement
of a bank's social conscience than the earlier version it
replaced.
If the public disclosure element isn't enough to inspire
a bank toward stellar performance, the possible threat to
future mergers and acquisitions certainly is. Federal banking
regulatory agencies have been known to deny a bank's application
for a new branch or purchase of another bank on the basis
of a poor CRA rating. CRA, then, is one of the few consumer
regulations that grabs hold of a bank's attention.
The Ratings
The revised regulation recognizes that large and small banks
can't help the neighborhoods they serve in the same way. Small
banks are limited by personnel and financial constraints.
Large banks have greater responsibilities because they take
in more deposits. Additionally, the geographical, financial,
and demographic context in which a bank operates plays a significant
role in how its performance is rated.
- Large Banks
Banks with assets over $250 million must pass 3 tests under
CRA: lending, investment, and service. Lending is by far
the most heavily weighted. Bank examiners assign points
to a bank's lending performance based on the number and
geographic distribution of loans. The number and amount
of home mortgage loans to low- and moderate-income borrowers,
and the number and amount of small business/small farm loans
are also important here. Community development loans score
high, too. There are 5 ratings a large bank can earn: Outstanding,
High Satisfactory, Low Satisfactory, Needs to Improve, and
Substantial Noncompliance. You should look for a bank in
one of the first 3 categories--the last two are strong indicators
that a bank is either clueless or heartless about serving
low- and moderate-income credit needs.
- Small Banks
Banks with assets under $250 million must still show healthy
lending levels (within their financial capacity), but the
rating system is slightly different. 4 categories are available:
Outstanding, Satisfactory, Needs to Improve, and Substantial
Noncompliance. As with the large bank rating system, you'll
want to avoid banks with performance ratings of Needs to
Improve or Substantial Noncompliance.
Where to Find the Information
Walk right into any bank and ask for its CRA Public Evaluation.
Expect perplexed looks--most bank employees probably won't
know what you're talking about. The manager is guaranteed
to know, so ask to speak to him or her if necessary. If you
don't have time to pay them a visit, you can call, but be
advised they may charge for photocopying and mailing you a
copy of the document.
The CRA Public Evaluation is what's prepared by the bank's
regulatory agency for consumers to read. That's where you'll
find the bank's rating and a rating explanation. If you're
at a bank's main office or the designated branch of an interstate
bank, you can also ask to see the CRA Public File. This file
contains public comments, the CRA Public Evaluation, a list
of bank services, a map of the bank's branches, a list of
opened and closed branches, and several other items that are
helpful in determining a bank's commitment to serving its
community. Banks with less than satisfactory ratings must
include their plans for improvement in this file.
A bank's performance dictates how often the regulatory agency
will conduct a CRA compliance examination. Consequently, it
may be years between examinations for some banks. If you'd
like to know when a bank is scheduled for its next examination,
you can consult the Federal
Financial Institutions Examination Council's Web site,
where exam schedules are published quarterly. The site also
offers comprehensive information on CRA in general.
|
|
