WASHINGTON – Sen. Paul Sarbanes lashed out Thursday at proposed changes to the federal Community Reinvestment Act that critics say will make it easier for banks to avoid service to poor areas of the state.
The government currently requires that large banks provide a certain level of loans to underserved communities, invest in such things as affordable housing bonds and volunteer work in the community.
But a proposal by the Federal Deposit Insurance Corp. and the Office of Thrift Supervision would change the definition of “large” financial institutions from those with assets in excess of $250 million to those in excess of $1 billion.
As many as 71 percent of Maryland banks that are FDIC insured would no longer be subject to the acts requirements under the proposed change, according to data provided by the Senate Banking Committee. It also would serve to exempt all Maryland-based thrifts.
“This is a bad policy judgment, done in a manner that harms the regulatory process,” said Sarbanes of both agencies.
But he singled out the OTS, which he said adopted the higher threshold in July without allowing for public deliberations on the increase.
The thrift office declined requests for comment on Sarbanes’ comments Thursday, and FDIC officials could not be reached.
But Maryland Banking Association President and CEO Kathleen Murphy welcomed the move, saying it is needed for an industry bearing the weight of myriad regulations.
“Ours is one of the most heavily regulated industries, which hamstrings banks and keeps them from providing better services,” in underserved communities, she said.
Small banks nationally are having a tough time keeping up with a host of recently enacted regulations, and Murphy said those banks would benefit the most from the changes to the Community Reinvestment Act.
Murphy also said that loosening the regulations would not necessarily equate to diminished services in the state’s poorer areas.
“What these changes do is to still require banks to provide for their communities, while giving them the flexibility to focus on areas where they can have the greatest impact,” Murphy said.
But Sharon Reuss, spokeswoman for the Center for Responsible Lending, predicted that the proposed changes will have a marked effect on the states poorer communities.
“The changes would remove the incentive for banks . . . to open or keep branches and to deliver necessary services for these communities,” she said.
The National Community Reinvestment Coalition estimates that 30 percent of rural and 70 percent of urban banks in Maryland would no longer be subject to the community reinvestment requirements under the FDIC rule.
“The effect on Maryland is somewhat opposite the rest of the country,” said John Taylor, president and CEO of the Washington-based group. “Nationally, it’s closer to 55 percent of banks in rural areas, and 45 percent in urban areas.”
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