The Community Reinvestment Act: evolution and current issues.

The Community Reinvestment Act took effect in November 1978. How well is it working? The answer is, probably a lot better than is often recognized. The legislation has had a major influence on reinvestment activity throughout the country and has brought greater attention to local needs, especially in low-income and minority areas. It has also engendered creative strategies and techniques to stimulate lending for community development. In many parts of the country, community groups and financial institutions have moved from adversarial relations to cooperation in pursuit of mutual goals.

Yet many financial institutions complain that complying with the Community Reinvestment Act (CRA) is costly and burdensome. Some criticize the law's requirements as too vague: others say that its implementation amounts, de facto, to credit allocation. Some also are adversely affected by the law's existence when they seek to expand operations, particularly if a public protest is filed. Many community and consumer groups, on the other hand, believe that financial institutions are not doing enough to help meet the credit needs of residents and businesses in low- and moderate-income areas. In part, they blame the supervisory agencies for being too lenient in assessing CRA performance and too generous in assigning grades. Caught in the middle, the agencies over the years have addressed the divergent views and expanded the guidance they offer while seeking to maintain the flexibility called for by the law.

Today the act remains a source of concerns common to regulators, bankers, and community activists - the paperwork burden the disproportionate effect on small institutions, and a lack of certainly in the law's application. But it also continues to offer each depository institution wide opportunities for meeting its CRA responsibilities creatively, in a manner that best accommodates the institution and the community it serves.

BACKGROUND

In the mid-1970s, a prevalent view among some members of the Congress was that many financial institutions accepted deposits from households and small businesses in inner cities while lending and investing those deposits primarily elsewhere. They believed that, given this disinvestment, or "redlining," credit needs for urban areas in decline were not being met by the private sector; moreover, the problem was worsening because public resources were becoming increasingly scarce.

In January 1977, the original Senate bill on community reinvestment was introduced. In the hearings that followed, opponents of the legislation voiced serious concerns that the bill threatened to allocate credit to geographic areas, according to the volume of deposits coming from those areas, or to specific types of loans, without regard for credit demand or the merits of loan applications. The law would therefore disrupt the normal flow of capital from areas of excess supply to areas of strong demand and undermine the safety and soundness of depository institutions. Proponents of the bill stated that it was meant to ensure only that lenders did not ignore good borrowing prospects in their communities and that they treated creditworthy borrowers evenhandedly. Senator William A. Proxmire, the bill's sponsor, stressed that it would neither force high-risk lending nor substitute the views of regulators for those of banks. He said that safety and soundness should remain the overriding factor when agencies evaluate applications for corporate expansion; meeting the credit needs of the community was only one of the criteria to consider.

Believing that systematic, affirmative programs would encourage lenders to give priority to credit needs in their home areas, the Congress passed the Community Reinvestment Act, and the President signed it into law on October 12, 1977.(1) The CRA reaffirmed the principle that financial institutions must serve "the convenience and needs" of the communities in which they are chartered to do business by extending credit in these communities. This principle is one that federal law governing deposit insurance, bank charters, and bank mergers had embodied long before the enactment of the CRA. Likewise, the Bank Holding Company Act - passed initially in 1956 - requires the Board, in acting on acquisitions by banks and bank holding companies, to evaluate how well an institution meets the convenience and needs of its communities within the limits of safety and soundness. Thus, the mandate of the CRA was, in many respects, already in place.

BASIC PROVISIONS

The CRA is directed primarily at the four federal agencies that supervise the institutions covered by the law - the Board of Governors of the Federal Reserve System (the Board), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS, formerly the Federal Home Loan Bank Board). First, the agencies are to use their supervisory authority to encourage financial institutions to help meet local credit needs in a manner consistent with safe and sound operation. Second, as part of their examinations, the agencies are to assess an institution's record of serving its entire community, including low- and moderate-income neighborhoods. Third, they must take that record into account when they assess an institution's application for approval regarding a deposit facility - a charter, a merger, an acquisition, a branch, an office relocation, or deposit insurance.

The act sets no criteria or guidelines for assessing the performance of an institution. It does not explain how an institution's "community" should be selected, how credit needs are to be determined, how to define low- and moderate-income neighborhoods, or what constitutes satisfactory compliance. With little guidance available form the statute, the agencies held hearings in 1978 to elicit the public's suggestions on how the CRA should be interpreted and implemented. Not surprisingly, views differed. Consumer groups favored specific rules - for example, the application of loan-to-deposit ratios for evaluating CRA performance - whereas industry witnesses voiced concerns about credit allocation and focused on the need for flexible standards.

The joint regulations subsequently adopted by the agencies reflected a set of principles that continues to mark the administration of the CRA: Flexibility is important, agency rules should not allocate credit, and institutions in different communities may approach the CRA in various ways. To deal with the lack of standards in the law, the regulations established twelve factors against which the agencies would assess the performance of institution (see box).

I assessing an institution's CRA record, the supervisory agency examines for technical compliance with a few specific rules and qualitatively evaluates the institution's performance in serving its entire community. The rules call for an institution to do the following:

* Formulate and adopt a public "CRA statement" that delineates the communities it serves, lists the principal types of credit it offers, and indicates where a person should writer to comment on the institution's CRA performance

* Maintain a file of comments from the public about its CRA performance (as of 1990, this "public comment file" also must contain the supervisory agency;s most recent assessment of the institution's CRA record)

* Publicly display a notice about the availability of the CRA statement and the public comment file.

The agencies also adopted uniform examination procedures. Like the regulations, the procedures stressed that financial institutions could use various means to learn about, and help meet, the financial needs of the surrounding community. The CRA did not establish hard and fast rules or ratios by which to judge an institution's performance. But an institution could expect negative marks if its pattern of loan applications, extensions, and rejections showed a concentration of credit approvals in high-income neighborhoods that was inappropriate given the institution's delineated service area and the presence of qualified applicants in lower-income areas.

In considering an application for a deposit facility, the supervisory agency assesses the applicant's CRA record - including its CRA rating and any actions taken to improve performance following an examination - as part of its decision to approve or deny the application. In the past, the agencies at times approved an application even though CRA performance was unsatisfactory if the applicant offered substantial commitments for future performance. Today, an institution generally is expected to have a satisfactory CRA program in place and working well before its application can receive approval. A poor CRA performance may, however, be outweighed by other factors, such as the need to merge a weak institution into a strong one, in which case the application may still be approved.

Policy Statements of 1980 and 1989

In December 1979 the Federal Reserve Board issued a policy statement on the CRA to guide state member banks; the Board also forwarded the statement to the Federal Financial Institutions Examination Council (FFIEC) for consideration by the three other supervisory agencies responsible for implementing the CRA. In September 1980 the FFIEC adopted a statement similar to the Board's and covering these principal points:

* Although directed toward meeting community credit needs, the CRA does not impose credit allocation.

* Disparities in loan-to-deposit ratios are not, on their face, evidence of discrimination or poor performance under the CRA.

* In the absence of substantial efforts to ascertain credit needs and publicize credit services, a lack of applications is not an adequate explanation for little or no lending in a particular neighborhood.

* Institutions are expected to offer throughout their communities the types of credit listed on their CRA statements.

* Favorable weight will be given to an institution's concerted effort to tailor and adapt programs and services to the needs of low- and moderate-income neighborhoods in its community.

* Commitments for future action will not be viewed as part of the CRA record of performance, but they may receive weight as an indicator of potential for improvement.

* Communication between applicants and protesting parties is encouraged, but the agencies will not approve or enforce agreements.

In subsequent years the CRA attracted increasing public attention. Reduced federal funding for community and housing programs and charges of discriminatory lending patterns intensified interest in bank performance. Community groups grew in number and experience and became more sophisticated in dealing with information about lending patterns. Challenges to applications multiplied, the handling of CRA protests became a significant aspect of the application process, particularly in major acquisitions by bank holding companies, and the volume and complexity of the CRA issues rate as the number of low CRA ratings grew.

The growing pressure on institutions increased their demands for guidance regarding adequacy of a CRA record and what to expect in the application process. In April 1989 the agencies released a second CRA policy statement bases on their decade of experience in evaluating applications, dealing with protests, and conducting examinations. Given the discomfort caused, on the one hand, by any notion of credit allocation and, on the other, by a perceived lack of detailed direction, the 1989 statement attempted to give more guidance to institutions but not hamstring them with rigid requirements. The statement added specificity about the responsibilities of institutions under the CRA, the manner in which the agencies would assess performance, and some of the elements found in effective programs.

A crucial feature of the 1989 policy statement was its emphasis on an institution's management of CRA performance as part of day-to-day activities. The statement reaffirmed the value of an institution's discretion in developing the products best suited to its expertise and the specific needs of its community. It stressed that the CRA requires an ongoing effort by an institution to ascertain the needs of its entire community, develop products in response, and market them throughout the community.

The statement also dealt with the CRA in the context of protested applications. It stressed that an institution's CRA evaluation rating would receive great weight. It encouraged community groups to bring CRA issues to the attention of banks and regulators without delay rather than to wait until an application was pending. Given the desirability of processing cases in a timely manner, the statement made clear that extensions of comment periods would be the exception, not the rule. The agencies also cautioned institutions t address their CRA responsibilities and to have policies in place and working well before they filed an application, signaling a shift away from approving applications on the strength of promised performance. In general, institutions could not hope to use commitments made in the application process to overcome a seriously deficient record.

Guidelines of CRA Evaluations

In August 1989 the Congress amended the CRA to require public release of examination assessments and change the CRA rating scale, effective July 1, 1990. To define the standards, the FFIEC issued "Guidelines for Disclosure of Written Evaluations and Revised Assessment Rating System" in April 1990. The guidelines detailed performance requirements and information about how examiners would evaluate institutions. They placed emphasis on the need for a managed CRA program: Were procedures in place at the institution to promote community dialogue? How did the institution take its assessment of community needs into account in product design and marketing? If it analyzed its geographic distribution of credit on an ongoing basis, what were the institution's own goals for lending distribution, and had they been met?

Although this approach steered clear of any semblance of credit allocation, it created a different problem by appearing to place undue emphasis on documentation. Widely reported statements from some regulators that "if it isn't documented, it didn't happen" contributed to that belief. So did some efforts of trade associations and CRA consultants, who prepared elaborate check lists of the documentation that institutions should provide to examiners. The requirement that public assessments be factually supported by "facts and data" - a provision added to the law in 1991 - brought other requests for recorded activities that the examiners could cite.

In 1992, amid rising concerns about excessive reliance on paperwork, the agencies issued new examiner guidelines. These made clear that examiners should base the evaluation of CRA performance primarily on how well an institution was helping to meet credit needs, not on the amount of documentation it maintained. A lack of documentation was not a sufficient basis for assigning a poor rating if satisfactory performance was otherwise demonstrated or apparent. The agencies also emphasized their expectation that documentation would normally be found in a well-managed program and that it would generally be less formal and less extensive in small and rural institutions.

PUBLIC FOCUS ON THE CRA

In recent years, interest in CRA activities has increased dramatically, especially since the CRA evaluations became publicly available. Public disclosure in some respects has further empowered community groups and individuals concerned about financial institutions' lending practices. Application activities, marking a movement toward interstate banking and the industry's restructuring, have provided a ready forum in which to raise CRA issues. Those interested in the CRA, moreover, now include not just the traditional groups of community activists but also local government officials, unions, churches, the media, and others.

Coverage of mortgage lending issues by news organizations, particularly of the data produced under the Home Mortgage Disclosure Act (HMDA), has fueled the debate over how well institutions are serving the credit needs of minority populations in their local communities. The provisions of the CRA focus on issues broader than the financing of low- and moderate-income housing, but community activists have always emphasized mortgage lending, in large part because of the combination of unmet needs in low-income areas and the ready availability of mortgage data.(2) As amended in 1989, HMDA calls for lenders to record the race, sex, and income of applicants for all mortgages and home improvement loans, including loans denied and withdrawn; lenders previously reported only loans that they originated or purchased.(3) For both 1990 and 1991, the HMDA data have shown the rate of loan denials to be generally higher for minority and Hispanic loan applicants than for Asian and white applicants. The data also show that the rate of such denials generally increases in neighborhoods as the percentage of nonwhite residents increases.(4)

Other factors have contributed to an intensified focus on the CRA. The financial support of federal programs for low- and moderate-income housing, for example, has dropped significantly over the past decade. In constant dollars, the total budget for low-income housing programs was reduced by more than half between 1980 and 1991, and federal support for rental housing also contracted sharply. These cutbacks have placed yet greater pressure on financial institutions to support local efforts to create housing.(5)

Some state governments require commitments to community reinvestment before out-of-state institutions can operate in their localities. They premise entry on a standard of net new benefits to the state, such as increased in-state lending and investments. To encourage CRA-related programs, some municipalities, too, condition their placement of deposits upon the institution's making specific types of loans. In Chicago, for example, institutions must file reports on their residential and commercial lending in the Chicago metropolitan area before they can qualify for the city's deposits. Even private organizations may evaluate potential depositories using CRA factors; in 1991, the American Bar Association resolved to place its accounts whenever possible in financial institutions that have shown outstanding or satisfactory performance in helping to meet the credit needs of their communities, including low- and moderate-income neighborhoods.

All this interest has turned the public and congressional spotlight on the agencies' process for examining the CRA performance of institutions and encouraging economic development efforts.

EXAMINATIONS

The CRA relies primarily on the examination process to ensure that depository institutions meet the credit needs of their local communities. The federal agencies have virtually identical CRA regulations, and they work together to promote uniform measures of performance among depository institutions and consistent results within and among agencies.

A major change for the CRA examination process occurred with passage of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). FIRREA amended the CRA to give the public access to examination assessments and CRA ratings prepared by federal regulators. The disclosure mandated by FIRREA had implications for depository institutions and examiners: Institutions with a negative CRA assessment now had to face the public display of the rating; and examiners preparing CRA reports were under much greater pressure to be precise and to be able to substantiate their findings.

The agencies' written evaluations have two sections: public and confidential. The public section discloses the examiner's conclusions, using the assessment factors developed jointly by the four supervisory agencies, and supporting facts; it gives a rating and explains the basis for it. The amended CRA mandates four possible choices ("outstanding," "satisfactory," "needs to improve," and "substantial noncompliance") from which agencies are to select in assessing the record of depository institutions. The confidential portion includes references to customers, employees, or other members of the community who provided information to the examiner and comments of a supervisory nature that the agencies believe ought not be public.

To implement these rules and promote uniformity in evaluations, the FFIEC published inter-agency guidelines and a rating system. The guidelines group the regulation's twelve assessment factors into five performance categories:

* What the institution does to ascertain community needs

* How the institution markets products and what types of credit are offered and actually extended

* Where the institution makes loans and where it has placed offices or closed them

* Whether evidence of discrimination or other illegal credit practices exists

* To what extent the institution participates in community development.

The guidelines provide examiners and institutions with sample profiles of CRA records of performance; these profiles correlate the quality and quantity of certain actions and efforts to the ratings for each assessment factor.

The public can influence an agency's evaluation of an institution's CRA record. Examiners review

Twelve Performance Factors

The federal supervisory agencies consider the following factors in assessing an institution's record of performance under the Community Reinvestment Act:

* Activities conducted by the institution to ascertain the credit needs of its community, including the extent of the institution's efforts to communicate with members of its community regarding the credit services being provided by the institution

* The extent of the institution's marketing and special credit-related programs to make members of the community aware of the credit services offered by the institution

* The extent of participation by the institution's board of directors in formulating the institution's policies and reviewing its performance with respect to the purpose of the Community Reinvestment Act

* Any practices intended to discourage applications for types of credit set forth in the institution's CRA statement

* The geographic distribution of the institution's credit extensions, credit applications, and credit denials

* Evidence of prohibited discriminatory credit practices or other illegal credit practices

* The institution's record of opening and closing offices and providing services at offices

* The institution's participation, including investment, in local community development and redevelopment projects or programs

* The institution's origination of residential mortgage loans, housing rehabilitation loans, home improvement loans, and small business or small farm loans within its community, or the purchase of such loans originated in the community

* The institution's participation in government insured, guaranteed, or subsidized loan programs for housing, small businesses, or small farms

* The institution's ability to meet various community credit needs based on its financial condition and size, legal impediments, local economic conditions, and other factors

* Other factors that, in the supervisory agency's judgment, reasonably bear upon the extent to which an institution is helping to meet the credit needs of its entire community.

(1.) In retrospect, the Congress enacted the CRA with surprising ease. In the Senate, a markup of the original bill was reported out of the Banking Committee and adopted as part of the Housing and Community Development Act of 1977. No companion reinvestment bill was introduced in the House; after minimal floor debate, House members adopted the Senate bill as amended by a conference committee of the two houses. (2.) Bills to expand HMDA to other types of credit, such as small business loans and personal loans, have been introduced over the years. For example, in 1992 Representative Maxine Waters of California introduced a bill to expand the types of loans for which applicant characteristics are collected under HMDA and to expand the analysis required to evaluate an institution's CRA performance (Community Credit Improvement Act of 1992, H.R. 6206 & 101, 102 Cong. 2 Sess., 1992). (3.) To maximize use of the expanded data, the Federal Reserve has developed a system that facilitates access and provides analyses of the data by demographic characteristics, such as race, gender, and income levels, and by geographic boundaries. Examiners are able to compare the HMDA data for a single reporting lender with the HMDA data for others within a defined geographic market. They also can compare the income levels and the race of applicants with characteristics of the census tracts where the properties that secure the loans are located. (4.) Glenn B. Canner and Dolores S. Smith, "Home Mortgage Disclosure Act: Expanded Date on Residential Lending," Federal Reserve Bulletin, vol. 77 (November 1991), pp. 859-84; Canner and Smith, "Expanded HMDA Data on Residential Lending: One Year Later," Federal Reserve Bulletin, vol. 78 (November 1992), pp. 801-24. (5.) For data on HUD's budget for low-income housing, see Cushing N. Dolbeare, "At a Snail's Pace, FY 1993: A Source Book on the Proposed 1993 Budget and How it Compares to Prior Years" (Washington: Low Income Housing Information Service, 1992). See also, Marion A. Cowell, Jr., and Monty D. Hagler, "The Community Reinvestment Act in the Decade of Bank Consolidation," Wake Forest Law Review, vol. 27 (1992),p. 90, note 64.

For data on the participation of the Federal Housing Administration in insuring mortgages on multifamily residential projects, see Report on the Status of the Community Reinvestment Act, before the Subcommittee on Housing and Urban Affairs of the Senate Committee on Banking, Housing and Urban Affairs, 102 Cong. 2 Sess., p.21 (Government Printing Office, 1992). CRA comments from persons in the community placed in the institution's public comment file, and may contact such persons directly. The examiners also seek out local officials, community groups, and others knowledgeable about local credit needs so that they can make an informed judgment about those needs and the institution's responsiveness.

The Federal Reserve uses consumer compliance examinations - as distinct from the commercial examinations for safety and soundness - to assess the CRA records of state member banks and their compliance with fair lending and other consumer statutes. These consumer examinations are conducted, in general, every eighteen months. Banks with a demonstrated need for greater oversight are examined more often; the lowest CRA rating of "substantial noncompliance" can bring reexamination within six months. Banks with exemplary records may be examined every twenty-four months. The frequency with which other regulators examine their respective institutions may differ somewhat from the Federal Reserve schedule.

The CRA examinations take into account the size, location, and organizational structure of the individual institutions and the nature and needs of the communities they serve. Size and financial strength will affect the expected scope of an institution's efforts to identify and respond to credit needs. For example, examiners would generally expect larger institutions to undertake specialized CRA-related activities to a greater extent, given their relative resources and expertise. Institutions that are part of a multibank holding company may be able to draw on the resources of the parent and affiliates.

Expectations also vary about how banks of various sizes demonstrate CRA performance in different settings. For example, CRA recordkeeping and documentation will generally be less formal and extensive in small and rural banks than in large urban institutions. This also holds true for the extent and sophistication of analyses of lending patterns for the CRA and other purposes.

Consistency and Level of Ratings

The agencies have worked to promote uniformity in CRA enforcement - using a common rating scheme, conducting interagency examiner training, adopting jointly developed examination standards and guidelines, and even reviewing examination reports across agencies to identify any lack of comparability in approach. Within the Federal Reserve, staff members at the Board participate regularly in CRA examinations of state member banks in connection with reviews of each Reserve Bank and sample reports from each Reserve Bank District to test for the consistent application of the Board's examination policy.

Nonetheless, institutions and the public alike express concern that, among the regulatory agencies and between different regions, examiners may apply differing standards when they assign ratings for CRA performance. Given the subjective nature of the CRA and the thousands of institutions examined - each with its own business goals and strengths, in communities with different needs and characteristics - some unevenness is probably unavoidable. Even though consistency remains elusive, it is an important goal.

Critics of the agencies' enforcement of the CRA also complain about the current ratings results, which in the aggregate are rougly comparable across agencies (table 1). About 10 percent of examined institutions receive and "outstanding" rating, and another 70 percent to 80 percent receive a "satisfactory." Some community groups see a contradiction between these results and public data indicating that even highly rated institutions have significant racial disparities in their home mortgage lending.

[TABULAR DATA OMITTED]

There probably is good reason for the current distribution of CRA ratings. All banks and thrift institutions pledge to meet the "convenience and needs" of their communities when they are chartered; this was so long before the CRA came on the scene. The fact that regulators have been assessing the CRA performance since 1978 also could be expected to have a positive effect. In addition, the "satisfactory" category - into which the vast majority of institutions fall - is quite broad and includes some with good performance and some with marginal but still satisfactory records. Adding a fifth rating has been suggested; doing so might permit a finer distinction in rating activities at the high or low end of a "satisfactory" rating and help produce a wider array of ratings.

The reliability of the rating system takes on special importance on light of legislation proposed in recent years to reward institutions for good CRA ratings. Institutions that have a "satisfactory" or "outstanding" CRA rating - and meet other statutory criteria - could be eligible for expedited approval procedures for opening new branches or could self-certify their compliance with the CRA and avoid routine examination. They could establish branches across state lines, or engage in new expanded powers, or enjoy a "safe harbor" from protests.

Given the current rating distribution, the tying of legislative rewards to CRA ratings does raise certain concerns, however. If the standard for any reward were set at a rating of "satisfactory" or better, almost all institutions would qualify; yet limiting the rewards to the "outstanding" category could be overly restrictive.

Ratings Anomalies 

The CRA rating system - one rating per depository institution - may affect similar institutions differently depending on their corporate structure. A bank holding company with ten subsidiary banks will have ten separate CRA rating because each bank is examined and assigned a rating. A poor rating for even one bank, depending on its size, may cause problems for the holding company. Yet a bank holding company of similar size, but structured as a single bank with multiple branches, will have a single CRA rating, and deficiencies in a few branches might have no major effect on that rating.

If legislation for interstate branching is enacted, the concept of a single CRA rating for a multistate, multibranch depository institution becomes more troublesome. Would the agency simultaneously examine branches in each state for compliance with the CRA? If the examinations were not contemporaneous, how would a "moving" rating be determined? One answer would be to change the nature of the focus and of the examination itself from the bank to the areas that it serves. Some legislative proposals, for example, call for separate evaluations for each metropolitan area in which an institution maintains a branch, or separate evaluations for branches in each state, all to be factored into a single rating or used to assign separate ratings for each major locality.

APPLICATIONS

The CRA offers a very big carrot - or stick - for encouraging depository institutions to meet their communities' credit needs. Agencies consider an institution's record when evaluating an application to start a new facility, open or relocate a branch, or merge, consolidate with, or acquire another institution. Thus, depository institutions and holding companies wanting to expand banking operations must assess their CRA performance, as well as financial, managerial, and competitive factors, when gauging their chances for approval.

Because the 1989 policy statement gives guidelines for evaluating the CRA aspects of applications, a common thread runs through the agencies' evaluation procedures, although timing and other processing rules may differ. In the case of the Federal Reserve, Federal Reserve Banks decide most applications under authority delegated by the Board. Often, a prospective applicant may discuss its proposed application with Reserve Bank officials in advance of its submission. Once an application is filed, the depository institution publishes notices in local newspapers and the Federal Reserve publishes a notice in the Federal Register. The Board's public comment period is thirty days for most applications, but because the notices in the newspaper and in the Federal Register generally are not published concurrently, the public usually has a longer period in which to comment.

Protests of Applications

Protests of applications are received from many sources and on many grounds. Protests from the insurance industry have commonly been made,for example, when bank holding companies seek to engage in insurance activities, on the ground that doing so is unlawful. Disgruntled shareholders may challenge the adequacy of the price offered for shares. Other protestants may raise antitrust issues. Protests of applications are therefore neither new nor restricted to CRA matters. Nonetheless, the linkage between the approval of an application and the evaluation of CRA performance raises the political and economic stakes of the application process both for community groups and for applicants.

The restructuring of the financial industry has involved high-profile expansion moves, and community groups have used protests aggressively to apply leverage on applicants. In private negotiations, protestants may threaten to create regulatory delays - and perhaps impediments to approval - and applicants often complain of "unreasonable demands" for lending commitments, financial contributions, and other concessions. At times, the applicants themselves may want to negotiate, rather than stand on their record.

Few applications filed with the Federal Reserve are protested on CRA grounds - between 1 percent and 2 percent since 1988. If a protest is received, the Federal Reserve stands ready to facilitate private meetings between the applicant and the protestant. These meetings are not required. Their purpose is to collect information and find areas of agreement or misunderstanding, not to force negotiated settlements. Neither the Federal Reserve nor the other agencies will defer action pending negotiation between the parties. Nor will the agencies enforce agreements that may be reached between an institution and a protestant; the agencies' CRA enforcement extends only to commitments made by applicants directly to the agencies.

Agencies may hold public meetings to obtain information not available otherwise or to expedite the application process. For example, the Board in the past two years held public meetings and received testimony from numerous witnesses on the application by Mitsui Taiyo Kobe Bank, Limited, to convert Taiyo Kobe Bank and Trust Company from a nonbank trust company into a bank; on the application by NCNB Corporation to acquire C&S/Sovran Corporation; and on the application by BankAmerica Corporation to acquire Security Pacific Corporation.

The Board is required to consider CRA performance in all applications to acquire or expand a depository institution. Not all applications that raise CRA issues for the agencies involve protests. At the Federal Reserve in the past three years, 63 percent of applications with CRA issues were subjected to an intensive analysis, not because of a protest but because of deficiencies brought to light during the examination process.

In holding company cases, CRA evaluations may especially complicate the application process because delays. If a protest is filed, the agencies will evaluate the merits and investigate allegations. If a public meeting is held, the volume of information to be considered can be formidable. In BankAmerica's application to acquire Security Pacific, for example, the Board received almost 350 comments and heard the testimony of about 175 witnesses in public hearings held in four cities.(6)

In a contested application, the ability to request and obtain information to conduct an evaluation can be slowed by procedural rules governing communication that includes some parties to the dispute but not others. Once an application is protested, the Federal Reserve generally must notify all parties before discussing issues raised in the protest with any one of them. The agency may communicate with the parties individually about purely procedural matters or matters unrelated to the protest, but isolating issues that are not related in some substantive way to the protest is often difficult. Thus, whereas ordinarily the information needed to complete and application record might readily be obtained from an institution, the process in a contested application is more formal and time-consuming.

In dealings between applicants and protestants, the agencies are sometimes caught in the middle. Their responsibility is to evaluate fairly the entire record on an application, including the issues raised by protestants. Throughout the application process, they attempt to balance the need for a thorough review of the statutory factors with the necessity for an orderly process and a timely decision. In the case of the Federal Reserve, a substantive written protest has the potential to extend the processing period somewhat. In general, however, the worry about delay is exaggerated. Significant delay as the result of a CRA protest or a rating issue is the exception, not, as commonly assumed, the rule. For example, of the cases acted on by the System in 1992 that involved CRA issues, only about 9.5 percent took longer to process than 60 days - the Board's internal deadline.(7)

Commitments

Since 1989 the supervisory agencies have viewed commitments for future action as largely inapplicable to an assessment of the applicant's CRA performance. In February 1989 the Board denied on CRA grounds an application from Continental Bank Corporation and Continental Illinois Bancorp, Inc., to acquire an Arizona bank despite commitments from Continental to improve its CRA performance in specific ways. The Board stated that such commitments could be taken into account only "when there has been a basic level of compliance on which the commitments can be evaluated."(8) In Continental's case, the inadequacy of past CRA performance made it inappropriate to consider such commitments.

More recently, the Board denied an application from Gore-Bronson Bancorp, Inc., to acquire a Chicago bank despite Gore-Bronson's commitment to address CRA deficiencies at two subsidiary banks. The CRA record had been less than satisfactory for two examination cycles for one bank, and for the other bank the CRA record had actually deteriorated under Gore-Bronson's ownership.(9) And in February 1993 the Board denied the application of Farmers & Merchants Bank of Long Beach to establish another branch and make additional investments in bank premises. The denial was based on the bank's prolonged compliance problems in the consumer lending area (which had led to a cease-and-desist order) and a deficient CRA program. Although the bank had begun taking corrective measures during the application process, the Board was unconvinced that the bank's compliance and CRA programs were viable and successful.(10)

Still, the Board may deem commitments appropriate when the proposed acquisition involves a troubled institution whose loss would be a detriment to the convenience and needs to its community. For example, the Board approved the application of First Union Corporation, Charlotte, North Carolina, and First Union Corporation of Florida, Jacksonville, Florida, to acquire Florida National Banks of Florida, Inc., a financially weak institution. The CRA performance of first Union's subsidiary banks showed problems in certain specific areas; but under section 3 of the BHC Act, the Board also must consider the convenience and needs of the communities the applicant will serve. The Board reasoned that maintaining services to Florida National's customers - including those in low- to moderate-income neighborhoods - was an overriding factor; the Board also noted that First Union recently had taken significant steps to improve its CRA performance.(11)

The Federal Reserve Board has denied few applications on CRA grounds, but it denies relatively few applications generally. In 1992, only six applications were turned down, one of them because of CRA deficiencies. This record does not, however, fully reflect the influence that the CRA has had. Institutions with poor CRA records often do not file an application with their supervisory agency. Others take concrete steps to address weaknesses in their CRA performance before filing an application. Still other applications are withdrawn if applicants anticipate an adverse finding after the agency's preliminary review.

What happens when some subsidiaries of a bank holding company have less than satisfactory records and the other subsidiaries have adequate, or better, records? In the application of SunTrust Banks, Inc., to acquire shares of Peoples Bank of Lakeland, substantially all of SunTrust's subsidiary banks had ratings that were satisfactory or better. The four subsidiaries identified as having CRA problems represented less than 10 percent of SunTrust's Trust's assets, and the problems did not indicate either chronic institutional or CRA deficiencies. The Board approved the application, noting that whenever problems were identified in the CRA performance of its banks, SunTrust had taken immediate steps to correct them and had done so in the case of these four institutions. The Board applied the principle that weight can be given to CRA commitments in addressing specific problems when the institution has an otherwise satisfactory CRA record.(12)

In the case of First Interstate BancSystem of Montana, on the other hand, the Board denied an application for a corporate reorganization based on the CRA record of a quite small banking subsidiary. The deficiencies in that case were serious and substantive; they had continued through successive examinations, and steps taken over a significant period of time had been insufficient to cure the problems.(13)

Over the years, questions have been raised about the bearing of the CRA on various kinds of applications. The obligation to help meet the credit needs of local communities rests with insured depository institutions and their deposit facilities. Thus, the CRA does not apply to applications by bank holding companies to acquire most nonbanking entitites under section 4(c)(8) of the BHC Act. The Board had determined, however, that the terms and purposes of the CRA and the BHC Act indicate that the Board has to consider CRA performance in a section 4(c)(8) application by a bank holding company to acquire a savings association. As a depository institution, a savings association is subject to the CRA, and consequently its acquisition as a deposit facility is covered by the CRA.(14)

COMMUNITY AFFAIRS PROGRAM

The CRA mandates that the regulators encourage institutions to help meet local credit needs. In furtherance of this mandate, the Board established a community affairs program more than a decade ago. The community affairs staff of each Reserve Bank routinely assists institutions with information about community development strategies and techniques and other reinvestment issues. They work with financial institutions, banking associations, government, businesses, and community groups to create programs for community development lending that help finance affordable housing, small and minority business, and other community revitalization projects.

Reserve Banks help facilitate the broad-based offering of credit through conferences for bankers on topics such as barriers faced by minority borrowers, steps to ensure that credit is offered on an equitable basis, ways of participating in economic development programs, and credit issues affecting Native Americans. Reserve Banks also provide technical assistance, helping institutions to create community development corporations (CDCs) and multibank lending consortiums and, in the case of institutions with unsatisfactory CRA ratings, helping them to strengthen their CRA program. Reserve Banks publish descriptions of CDCs, limited partnerships, and other community development projects in which bank holding companies have been allowed to invest. They prepare profiles that identify key community and economic development needs and describe resource organizations in major communities.

For example, the Federal Reserve Banks of San Francisco and Philadelphia have produced community profiles used by local financial institutions to address specific issues and projects. The Federal Reserve Bank of Boston has developed a training curriculum on community-development finance for bankers. Reserve Banks also publish a variety of other brochures and manuals that assist lenders in community development activities. Their community affairs newsletters have a combined circulation of more than 40,000.

Other federal banking agencies also have community affairs programs. The OCC's Community Development Division, for instance, oversees CDC and investment programs and approves applications by national banks to invest in CDCs in accordance with the National Bank Act and its interpretations. The FDIC has a community affairs program that, like the Federal Reserve's, has a regional presence.

Industry Initiatives

The CRA has stimulated an abundance of activity by financial institutions and others. For example, in late 1992 the American Bankers Association established a Center for Community Development whose primary mission is to provide information and technical assistance to its members. The center has already published an educational guide, and in 1993 it expects to sponsor workshops and publish a compendium of contacts at community lending agencies and organizations. The center is also involved in credit counseling outreach, offering camera-ready copies of a five-part series of brochures on such issues as home buying and credit rights for member banks to publish and distribute in their communities.

Two recent surveys illustrate the banking industry's efforts. In a survey of banks, thrifts, and holding companies, the Consumer Bankers Association found that roughly 90 percent of its respondents have programs that target purchase-money lending for low- to moderate-income housing. Nearly 95 percent of the programs include mortgage products with flexible requirements for down-payment, loan-to-value ratios, and debt-to-income ratios designed to make home financing more available and affordable.(15) An in late 1992, the OCC announced the results of a survey to which nearly 55 percent of all national banks responded. A majority of the respondents engaged in community development lending and financed low- to moderate-income housing, small businesses, and small farms. The type of lending tended to differ according to their asset size. For instance, among the largest banks (assets of more than $1 billion), 86 percent focused on low- to moderate-income housing, whereas among the smallest banks (assets of less than $100 million), 72 percent reported making small-farm loans.

Depository institutions have access to various forms of assistance to support their CRA activities. For example, the Federal Home Loan Bank System offers two loan programs to its membership of savings banks, savings and loan associations, and banks. It advances funds or subsidizes below-market-rate loans originated for low- to moderate-income families and for businesses in low- to moderate-income neighborhoods. Its Community Investment Program provides home lending funds to projects aimed at individuals with incomes of up to 115 percent of an area's median income; an Affordable Housing Program provides home lending

(6.) "Legal Developments," Federal Reserve Bulletin, vol. 78 (May 1992), BankAmerica Corporation, pp. 338-69. (7.) Some of the cases may have involved proposals that required the applicant to file more than one application. (8.) "Legal Developments," Federal Reserve Bulletin, vol. 75 (April 1989), Continental Bank Corporation and Continental Illinois Bancorp, Inc., p.305. (9.) "Legal Developments," Federal Reserve Bulletin, vol. 78 (October 1992), Gore-Bronson Bancorp, Inc., pp. 784-86. (10). "Legal Developments," Federal Reserve Bulletin (this issue), Farmers & Merchants Bank of Long Beach, p. 365. (11). "Legal Development," Federal Reserve Bulletin, vol. 76 (February 1990), First Union Corporation, p. 88. (12). "Legal Developments," Federal Reserve Bulletin, vol. 76 (July 1990), SunTrust Banks, Inc., pp. 542-45. (13). "Legal Developments," Federal Reserve Bulletin, vol. 77 (December 1991), First Interstate BancSystem of Montana, Inc., pp. 1007-10. (14). Similarly, regulators consider CRA performance when a bank holding company acquires the assets and liabilities of a thrift institution in a merger that is subject to the so-called Oakar amendment to the Federal Deposit Insurance Act. See "Legal Developments," Federal Reserve Bulletin, vol. 79 (February 1993), letter, Jennifer J. Johnson, Associate Secretary of the Board of Governors of the Federal Reserve System, to John H. Huffstutler, Assistant General Counsel, BankAmerica Corporation, pp. 148-52. Conversely, the Board has determined that the CRA does not apply to applications under the Change of Bank Control Act. (15). Consumer Bankers Association, Affordable Mortgage Survey: A Survey of Bank Mortgage Programs as of June 30, 1992 (Washington: CBA, 1992), pp. 2,4. funds to support housing for people with incomes of 80 percent of an area's median income and rental housing funds where at least 20 percent of the units are occupied by very low income tenants.(16)

Increasingly, attention has turned to the role of the secondary markets in funding loans to low- to moderate-income applicants or in low- to moderate-income neighborhoods. Secondary markets provide liquidity to lenders by purchasing the loans that lenders originate, enabling them to meet additional credit needs. For example, more than half of the "affordable mortgages" reported by the respondents to the Consumer Bankers' survey are sold to the secondary market.

The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) have both announced initiatives in recent years to purchase loans with underwriting guidelines or payment terms that do not meet their more traditional loan purchase programs. The Congress has spurred these corporations to support low- and moderate-income loans by setting specific volume goals over a two-year period beginning with 1993. For example, for all the loans they purchase, 30 percent of the units financed must be for low- to moderate-income borrowers, 30 percent must be located in central urban areas, and $3.5 billion ($1.5 billion for Freddie Mac, $2 billion for Fannie Mae) must finance loans to low-income and very low income home buyers.(17)

OTHER ISSUES

Throughout its fifteen-year history, the CRA's seemingly simple but vague and imprecise charge has caused much consternation. The act, after all, is not an arcane banking matter of interest only to specialists in finance; in practice, it touches on social issues of great sensitivity and complexity, including issues of race and economic class, and its day-to-day influence on covered institutions has been significant. As a result, questions about the law's administration, including potential conflict with safety and soundness, continue to be raised - as do numerous proposals for better definitions of standards, easing of the regulatory burden, and incentives for superior performance.

Concern with Safety and Soundness

The mandate of the CRA, that institutions are to help meet community credit needs in a manner consistent with safety and soundness, requires lending choices in which some lenders believe they are "damned if they do and damned if they don't." Loans in low- to moderate-income neighborhoods, whether residential or commercial, often require underwriting standards or terms that differ from an institution's more traditional products and from an agency's loans classification standards.

Anecdotal evidence suggests that, by and large, the losses on lending that addresses CRA responsibilities is not significantly different from the losses on other product lines. But lenders express frustration that federal financial regulatory agencies may criticize the very loans the agencies are other wise encouraging. They argue that the nontraditional loans may satisfy examiners monitoring CRA compliance, but the loans could well be downgraded internally by the bank's loan committee or by commercial examiners unfamiliar with special features - such as "equity substitutes" in the form of government guarantees - that may in fact make them very sound loans.

The agencies have repeatedly emphasized that the CRA does not contemplate the erosion of safety and soundness. To reduce the perception that commercial and CRA examiners work at cross purposes, for example, the Federal Reserve provides training to commercial examiners on the CRA. Nevertheless, there is a widespread impression that institutions are being "whipsawed," and the agencies are having to take special care not to send mixed messages.

Lack of Certainty

Rules that are more precise would, of course, ease the task of examiners, institutions, and the public in determining the adequacy of CRA performance. Many lenders express frustration at the business of translating the broad mission of the CRA into specific actions. To be sure, most lenders would oppose over credit allocation and would resist being told what products to offer, or in what volume, or on what terms, or to whom. But many want to know, from the start, exactly what the "right" activities might be for CRA performance and what it takes to get an "outstanding" CRA rating. Examiners who judge performance, and community groups who evaluate institutions, likewise would be more comfortable with greater certainty.

The problem lies in preserving flexibility and providing precision at the same time. The CRA can be criticized for its ambiguities, but that same "flaw" allows for variations by institutions in meeting their responsibilities under the law. Over the years, the regulators have emphasized their position that no single community reinvestment program is perfect for every institution. Financial institutions can design CRA programs that fit their own business orientation and the special needs of their communities. Still, the agencies have offered extensive guidance on the CRA - policy statements, examination procedures, assessment factors considered in evaluations, elements of successful CRA programs, and advice through community affairs programs. Throughout, they have emphasized flexibility, seeking to give detailed guidance without imposing specific mandates.

Initially the industry wanted flexible CRA rules out of concern about regulatory credit allocation. The industry argued that neither the law nor the regulations should set minimums or mandate the types of loans an institution must offer. Increasingly, however, depository institutions and trade groups have asked for more precise rules. Recent interest in community development banks has even brought suggestions that institutions be allowed to meet their CRA obligations by specified investments in such institutions.

The State of New York, which has a community reinvestment law much like the federal law, is considering a proposal that would identify specific activities for which depository institutions covered by the state's statute could earn CRA "credit." The system would require institutions to establish investment targets for the CRA, measure these investments in relation to the institution's assets, and tie CRA ratings to minimum specified amounts of such investments.(18)

Moving toward a cafeteria-style menu of value-weighted, "approved" CRA activities - in a manner similar to what New York has proposed - has some appeal in that it would offer certainty. Potentially it also could increase desirable CRA-related activities in local communities. At the same time, creating such a list would inevitably transfer decisionmaking in some measure from an institution to the government. As it stands, the CRA's broad standard allows each depository institution to be creative in meeting credit needs within its lending community. The incentive to offer innovative service may be lost if institutions find it necessary to choose between engaging in services they know will earn them CRA credit and taking a chance on something that does not quite fit into a preapproved pigeonhole. Also, the CRA is meant to encourage institutions to meet the credit needs of their entire community. Communities could be left with unmet credit needs if institutions were able to fulfill their total CRA responsibilities by a single CRA-related action, such as a passive investment in one community development organization in a sole low- moderate-income neighborhood.

Paperwork Burden

Among lenders, and even community representatives, one major source of dissatisfaction with the CRA is the paperwork that they believe the agencies require to demonstrate an institution's record of performance. Small institutions, in particular, complain that the documentation provided to agency examiners is costly and unnecessary. Recent studies by trade groups among banks of all sizes point to the CRA as imposing substantial compliance costs. In a June 1992 study by the American Bankers Association on the sources of regulatory burden, the CRA topped the list as the most significant. A study by the Independent Bankers Association of America estimated that compliance with the CRA cost about $1 billion annually out of a total $3 billion for selected laws.

Some community groups, too, criticize regulators for elevating form over substance. More attention is focused on documenting community outreach, they say, than on whether an institution actually is making loans. While they may have a common complaint with some in the industry, however, their suggested correction for the problem is likely to be more mandated lending - a result most in the industry would oppose.

The technical "hard paper" burden of the CRA is in fact rather small: a CRA statement listing the types of loans the institution is willing to make; a map showing the boundaries of the local communities it serves; evidence (usually a notation in the minutes) that the board of directors has reviewed the statement at least annually; a lobby notice describing how the public can comment on the institution's CRA performance; and a file with its CRA statement, agency assessment, and public comments available for inspection. All are modest requirements, but they do not, of course, reflect the true extent of the documentation actually needed. Other paperwork is unavoidable. The statute calls for the public CRA statements to contain "facts and data" to support the examiner's conclusions, and as a practical matter most of these "facts and data" can come only from the institution.

One of the twelve assessment factors for CRA performance requires the examiners to evaluate the geographic distribution of the institution's credit extensions, applications, and credit denials. After considerable debate on this point, the FFIEC in December 1991 issued a policy that strongly encourages institutions to analyze the geographic distribution of their major product lines as part of their CRA planning process. Institutions also are encouraged to collect lending data and correlate them with the relevant demographic facts relating to the institution's community. The board of directors and senior management are expected to review the analyses in setting and evaluating the institution's CRA program. Understandably, this geographic tracking also has contributed to complaints about CRA paperwork.

In June 1992 the FFIEC issued examination procedures to address the outcry about unnecessary paperwork burden. The revised procedures emphasize that examiners should focus on performance in meeting credit needs, not on process, and that an institution's size has a bearing on how formal the proof of performance needs to be. Regarding geographic analysis, the FFIEC stated that the extent and sophistication of analyses expected by the agencies will depend on the size and location of the institution. What may be required for a large institution to track its loans, for instance, is not required for a small institution, which could be served by a more informal system.

Any well-conceived, ongoing CRA process will involve normal business documentation. To recognize the credit needs in their communities, as well as to know whether they are meeting those needs, institutions must have a process in place that provides relevant information. This is certainly the case for most large institutions, especially those with widespread branch networks. Smaller institutions, too, need to demonstrate performance, but their documentation may not have to be as sophisticated or extensive.

Despite agency efforts to contain the problem of CRA paperwork, it remains troubling. Through the FFIEC, the federal regulators continue to evaluate the paperwork issue as well as other CRA enforcement matters to see whether clarification or additional change is warranted.

Exempting Small Institutions

The agencies generally have tried to be sensitive to the complaints of small institutions that they are disproportionately affected by the CRA. The institutions say they must serve the needs of their entire community just to exist as viable businesses, and that, therefore, CRA requirements are unnecessary for them. Exemptions for small institutions are not a novel concept. For example, a depository institution's size determines whether it is covered by HMDA and, if it is covered, the data that it must report.

Community groups do not believe that small institutions necessarily meet the credit needs of their communities as a matter of course, and they point to the low loan-to-deposit ratios of some small banks.(19) They say small institutions need to do more, not less, to comply with the CRA, and therefore they strongly oppose proposals for a small-institution exemption and for self-certification.

Apparently, the size of an institution is not a good indicator of CRA performance. Most institutions in all asset-size categories received "outstanding" or "satisfactory" ratings in examinations in the first three quarters of 1992 (table 1).

Some members of the Congress have taken up the proposal to exempt small institutions from the CRA. One bill would exempt an institution from the CRA if it is in a small town, has assets (aggregated with the assets of its holding company) of $75 million or less, and can show that its loans come to 50 percent or more of deposits. Such a proposal would exempt about one-fourth of the 12,000 institutions supervised by the Federal Reserve, the FDIC, and the OCC, but it would maintain CRA coverage of almost all banking assets. Of the total group's $3.6 trillion is assets, the banks that would be exempted account for about 3 percent, or $107 billion.

Another proposal would allow institutions with total assets of $250 million or less to certify their compliance with the CRA - provided, among other things, that they have a "satisfactory" or higher rating and remain in compliance with the Equal Credit Opportunity Act. Self-certification would take the place of agency examinations. The regulators would be required to examine an institution only in response to an allegation that it was not meeting the credit needs of its entire community. If banks with assets of up to $250 million were exempted from the CRA, as many as 87 percent of all financial institutions in the country could be excluded. But again, in terms of total dollars of community lending and investments, the likely effect of the exemption would not be major. Thus, such an exemption might respond to much of the concern about paperwork without undermining the force of the CRA.

Lack of Incentives

Financial institutions complain about the lack of incentives for outstanding performance, noting that even a superior CRA rating offers no protection from a protest. Ideally, of course, good performance should bring its own rewards - new business and enhanced public relations. But after assessing what it might cost to be rated outstanding, some institutions believe that payoff is not worth the extra effort under current law.

Various ideas have been proposed for adding statutory "carrots" to the CRA to increase the incentives, including a "safe harbor." A safe harbor might limit formal protests against applications, for instance, except when the evidence of a CRA performance problem is substantial and specific.

The state of New York is taking public comment on establishing a safe harbor in the application process. A bank with an outstanding rating on its three most recent CRA examinations would be assured that its CRA performance would not bar application approval. The theory is that such a scheme would encourage banks to make the CRA a part of their overall, day-to-day business plans. They would strive for outstanding performance and not view the CRA primarily in the context of applications. The Banking Department acknowledges that a safe harbor might be perceived as reducing community group's involvement in the CRA. But state officials believe that if public comment were part of CRA examinations and not limited to the application context, its influence could be greatly enhanced.

The Congress has taken a first step in providing incentives. Under the Bank Enterprise Act of 1992, insured depository institutions that do business in economically distressed communities can earn assessment credits for application against their deposit insurance premiums.(20)

CONCLUSION

From modest beginnings and minimal legislative review, the CRA has grown in national importance. At the same time, the vague nature of the act has bedeviled its implementation through the years. In essence, instead of imposing hard and fast rules, the statute relies on individual institutions and their local communities to define credit needs, with the expectation that the agencies will encourage this process and assess its success. To make up for the lack of precision, the agencies charged with enforcing the CRA have sought to measure CRA performance in a fair and comprehensive manner and to provide increasing guidance while avoiding any appearance of credit allocation.

Through a combination of efforts, the CRA has stimulated loans for home purchase, construction, and rehabilitation and for the development of small business and minority-owned business in low- and moderate-income areas. It has brought increased participation in public-private partnerships in urban and rural communities and has encouraged support for community development corporations and multibank lending consortiums that benefit low- and moderate-income communities. Indeed, many financial institutions have discovered that complying with the CRA helps them to compete for new customers and generate profitable business.

Although progress in community reinvestment marks the evolution of the CRA, unresolved problems remain and frustrations abound for financial institutions, supervisory agencies, and the public. In many cases, the major source of frustration rests on the law's lack of specificity. Yet that very lack also may be the law's most important strength. While providing strong incentives for institutions to reach out to their entire communities, it leaves the question of "how" largely in the hands of the institution and its community. In so doing, it continues to encourage and produce important reinvestment efforts throughout the nation.

(16.) Federal Home Loan Bank Act, 12 U.S.C. [section] 1430 (i), (j) (Supp. III 1992). (17.) Housing and Community Development Act of 1992, P.L. 102-550, 106 Stat. 3672, [sub-section] 1332-34 (1992). (18.) The state's community reinvestment law is in N.Y. Banking Law [section] 28-b (McKinney 1990). The proposal for earning CRA credits is in New York State Banking Department, "Proposed Comprehensive Policy Statements Relating to the New York State Community Reinvestment Act: Request for Public Comment" (September 9, 1992). (19.) FFIEC, Study on Regulatory Burden (Washington: FFEIC, 1992), Appendix A, p. 2. (20.) 12 U.S.C.A [section] 1834 (Supp. 1992). The Congress has provided funds for establishing a Community Enterprise Assessment Credit Board, which will create the guidelines for qualifying activities. The program cannot be implemented, however, until additional money is appropriated to fund the assessment credits.