The Bureau of National Affairs, Inc. 1231 25th Street, N.W. Washington, D.C. 20037 1991, 545 pages, $95 Frequently, observers say the Community Reinvestment Act (CRA) contains an inherent conflict for financial institutions. Some say the stress that lenders are under to make loans to meet CRA requirements conflicts with the regulatory emphasis on safety and soundness. Similarly, lenders worry that their CRA-related loans might prove too risky, according to principal author Kevin Kane of A Banker's Guide to the Community Reinvestment Act: Case Studies of 33 Institutions. The Banker's Guide details some innovative solutions that institutions have found successful.
Kane holds three advanced degrees including a master's of law in banking law and a master's of business administration.
The specialist on banking law quotes Dean Debuck, a spokesman for the Office of the Comptroller of the Currency: "Some banks claim that CRA loans are bad loans. We don't agree. There are good loans to be made to fulfill your CRA responsibility...."
"Nobody tries to make bad loans; that's not the issue," argues James P. Murphy, executive vice president of Fleet/Norstar Financial Group, Providence, Rhode Island, in a quote from the book. Murphy said, "We're trying to sensitize the examiners" to allow flexibility on CRA loans.
Author Kane says some bank and thrift officials fear that by denying lenders the ability to use flexible lending standards, regulators are reducing the flow of capital to the very people with low and moderate incomes whom CRA is supposed to help.
Kane explains how CRA originated 15 years ago as a measure to help rebuild deteriorating neighborhoods found in many inner cities to provide more private-sector involvement. More recently, CRA has gained renewed impetus. In 1989, Chicago's Continental Bank Corporation wanted to acquire the Canyon State Bank of Arizona. The Federal Reserve Board denied the request because no adequate CRA plan had been developed by the bank. Experts noted that the importance of this denial has clearly increased in light of the recent trend toward banking "megamergers," because community action groups have made their voices heard in many pending mergers in regard to institutions' CRA involvement. In the proposed megamerger between San Francisco's Bank of America N.T. and S.A. and Security Pacific National Bank of Cypress, California, the Federal Reserve said in December that CRA-related issues must be aired at public...