Performance-Based CRA, Round One

A look at exams, strategic plan options, and big banks' challenges is a rumor floating around the compliance fratermity that a large bank that was so sure of its Community Reinvestment Act record took the option of being examined under the new large-bank standard exam--and got walloped. Just where that story was born is impossible to determine. Senior regulators for all three federal banking agencies say know of no such bank. Yet that mystery serves to illustrate one point about the new CRA world: In spite of voluminous regulations--and equally lengthy exam guidelines--lots of questions remain as the industry approaches the end of two quarters under the new rules. streamlined small bank exam scene: ABA's spring compliance teleconference. After a series of questions touching on the issue, FDIC compliance official Bobbie Jean Norris, a panelist, with a hint of exasperation, focused on the matter that was really on the questioners' minds: What's a reasonable loan-to-deposit ratio for a small bank qualifying for the streamlined CRA exam to have? (A preliminary version of the new rules called for a 60% ratio, this was excised from the final rule in favor of reasonable.) We get this question every day, said Norris. It gets at what is this magic number we have in our back pockets. But it really will depend on a lot of other factors. Other regulators chimed in, pointing out that peer group analyses may even be performed by examiners to make sure the bank is being compared to a realistic universe. Old suspicions die hard, however, and consultants with small-bank clients say there is some good reason for this. Sixty percent is still there, says Lucy H. Griffin of Compliance Management Services, Falls Church, Va. She says the figure has been mentioned in passing by examiners too often to have no meaning in actual practice. That's not to say it's being used as a 'pass-fail' point, Griffin adds, but it's clearly a benchmark. Slip below 50% and you're going to draw attention to yourself, says Kevin Kane, a consultant in the Chicago office of Professional Bank Services, Inc. Overall reading: Not so bad Generally, compliance experts say small banks have had a pretty easy go of it thus far. are none of the horror stories that used to typify CRA exams. Of her small-bank clients, consultant Michelle Feeley of Feeley Associates, Allentown, Pa., notes, they have found it to be much easier and much more performance-driven. is much less focus on paper and all feel the new exam is much quicker. On the other hand, some say this isn't surprising; with the rules and procedures still being as new as a pair of shoes out of the box, examiners are stepping gingerly. Some go so far as to describe the first quarter as a honeymoon period and suggest that the second round of exams banks receive in years to come will indicate what examiners really expect. I'm certainly one to worry about 'mission creep' in a CRA context, says consultant Jo Anne S. Barefoot of Barefoot, Marrinan & Associates, Inc., Columbus, Ohio. The original law and regulations were also very simple at the start. Bottom line: ratings is some skepticism that, long-term, community banks will find it harder to obtain outstanding ratings under the streamlined test. That hasn't been proven yet, though a few smaller banks expected outstandings and received satisfactories instead. Yet some speculate that it may be that small banks examined early in the new process may be better off than those visited after examiners have grown more familiar with the new procedures. There is some sense that with the first crack at bat, you're given a walk, unless you are doing something egregious, notes Cindy Baltierra, director of ABA's Center for Legal and Regulator), Compliance. For the regulators' part, Bert Otto, acting deputy comptroller for compliance at the Comptroller's Office, notes that in the first quarter small national banks were actually running very slightly ahead of the recent past, with a tad more banks receiving outstanding ratings versus satisfactory ratings. …