Rebuild L.A. to form inner-city development bank; nationwide search launched to find chief executive.

Rebuild Los Angeles, hoping that President Clinton will make good on his campaign promise to help revitalize inner-city areas by pumping $850 million into 100 new community development banks across the country, is in the early stages of forming its own community development bank.

Rebuild L.A. officials reported that they are scouring the nation for a president and chief executive officer to take the helm of what would be the first community development bank in Los Angeles.

Once that leader is found, RLA officials said, they expect to raise total start-up capital of between $10 million and $20 million. The money will come from a combination of sources, including investors, nonprofit foundations, other banks and a grant from the Clinton-proposed federal program, said RLA Project Manager Rena Wheaton. She said she could not estimate how much of that start-up capital might come from the Clinton-proposed federal program.

East Los Angeles and South Central Los Angeles are two locations being targeted for branches of the proposed RLA community development bank, Wheaton said.

"Residents there are paying big fees to get checks cashed by the check-cashing houses or liquor stores," Wheaton said. But an RLA community development bank could help alleviate that problem, she said.

Money deposited in the RLA bank would be reinvested in the local community, mainly as loans to small businesses, Wheaton continued.

Community development banks are not a new concept, but Clinton's proposed program would be the first nationwide effort to fund the start-up of such banks, said banking experts.

Community development banks must meet the same capital requirements and other restrictions as other banks. But their primary goal is to make business and home loans to customers in blighted areas, not generate big profits for stockholders, said Nancy Badely, a spokeswoman for the San Francisco-based California Bankers Association.

Jerry Findley, principal of Anaheim-based Findley Reports, a company that issues publications chronicling the financial health of banks, said community banks are good in concept. But Findley said he is skeptical of President Clinton delivering on his promise of $850 million in support for that concept.

"I don't think they (members of the Clinton administration) will do a damn thing. It is rhetoric with no substance," he said.

Furthermore, Findley said, banks' enthusiasm for investing in community development banks will ebb once bank officers discover that a token pledge of, say, $10,000, or some such meager amount, as start-up money for a community development bank is not enough to bring them into compliance with the Community Reinvestment Act of 1977.

The Community Reinvestment Act requires banks to make redevelopment and business loans in blighted communities. Banks do not have to reinvest a designated percentage of their deposits under the Community Reinvestment Act. However, federal banking regulators regularly check up on banks to see that they are funding community redevelopment loans.

Before 1990, there was little federal banking regulators could do to ensure banks were meeting their community redevelopment loan obligations because banks were not required to disclose how many loans they made to customers in blighted urban areas. That changed with the Federal Institutions Reform, Recovery and Enforcement Act of 1989, also known as FIRREA, which took effect in 1990.

In addition to its major aim of bailing out the savings and loan industry and instituting safeguards to prevent a recurrence of the S&L fiasco, FIRREA required banks to specify how much they were spending to comply with the Community Reinvestment Act. Federal banking regulators, as part of FIRREA, developed a compliance grading system of 1 (exceptional) to 4 (unsatisfactory).

Banks are more willing, since FIRREA, to meet CRA guidelines, said Wayne Rickards, director of compliance and special examinations for the Federal Reserve Bank's San Francisco office.

Rebuild L.A. is not the only Southland group in the process of trying to launch a community development bank.

A group of investors led by former Federal Reserve Bank employee Bob McGill has been working for the past 18 months to start Neighborhood Bancorp, a community development bank targeted for southeastern San Diego. If Neighborhood Bancorp is successfully launched, it will primarily focus on providing financing for affordable housing projects in the mainly Hispanic and black neighborhoods of southeastern San Diego.

McGill, who also has worked as a financial consultant to Southland home builders, said he needs between $5 million and $8 million to create Neighborhood Bancorp. He said he is encouraged by President Clinton's pledge to help community banks get started, but added that he and his associates had laid most of the groundwork to form Neighborhood Bancorp long before Clinton pledged federal money for the program.

"We have seed capital pledges from four banks, including Wells Fargo, Union, First Interstate and Manufacturers," McGill said.

Nancy Huntington, a Los Angeles-based compliance officer at Manufacturers Bank, is also among those who voice support for community development banks. "Investing money into one of them is one of the ways a bank like Manufacturers, which does not have the expertise to be a residential lender, can help finance affordable housing," Huntington said.

Investing in community development banks is a good way for smaller, more-specialized banks, such as Manufacturers and Union Bank, which mainly serve the business community, to comply with the Community Reinvestment Act, added Rickards of the Federal Reserve Bank in San Francisco.

"But a bank can't invest money in a community development bank once and expect to be in compliance forever. The regulators will constantly weigh their compliance program against the needs of the local community," Rickards said.

Jack Rodman, a consultant with the Los Angeles-based accounting firm Kenneth Leventhal & Co., said community development banks are a solid part of President Clinton's economic package. Federal support for the banks is high on the president's list of priorities, Rodman said.

"(Community development banks) will be a vital part of an overall package that will help the economy throughout the country," Rodman said. And Los Angeles and California are such a big part of the country's economy that Los Angeles County will get a big share of the Clinton-package, Rodman added.