A. William Sands
Published June 1, 1990 | June 1990 issue
The Community Reinvestment Act (CRA) of 1977 was one of a series of laws passed by Congress to address problems of unequal access to credit. The CRA emphasizes the continuing and affirmative obligation of lending institutions to meet the deposit and credit needs of their entire community, including low- and moderate-income areas, consistent with safe and sound lending practice.
In passing the CRA, Congress gave three mandates to supervisors of banks and thrifts: to encourage supervised institutions to meet their affirmative obligations under CRA, to assess the CRA record in the examination process, and to take the record into account when reviewing applications for the expansion of banking services.
A regulatory challenge within the "encouragement" mandate is to demonstrate how CRA compliance should flow from good banking practice. Often, the best way to meet this challenge is to turn to bank and thrift leaders who have folded CRA compliance into a larger scheme that makes sense for their institutions, without compromising safety and soundness and without losing sight of their profit objectives. A. William Sands, chairman, Western Bank & Insurance Agency, St. Paul, heads one of the many Ninth District institutions meeting this challenge effectively.
All of the banking community and, I imagine, many community-based organizations and individuals, are aware of the fact that Community Reinvestment Act (CRA) examination ratings and written evaluations must be disclosed to the public for all examinations conducted on or after July 1, 1990.
At Western Bank, that's not a particularly imposing date because we've had a long-term commitment to meeting the financial needs of all types of customers that are located close to our banking offices. For 75 years, we've been located near the University/Dale intersection, about one mile west of our capitol. The surrounding community has always been lower to moderate income and presently is as diverse as any community or neighborhood in the Twin Cities.
After branch bank legislation was passed in Minnesota, Western established a branch on the northern edge of St. Paul on Larpenteur and Rice Street in 1982. In 1986, Western opened a branch in Oakdale, a first-tier suburb of St. Paul. While the people in these two communities tend to have a different set of financial needs than the people in the communities surrounding our University Avenue office, the processes we use to meet their needs basically are identical.
We believe that the key to our success, as well as meeting the guidelines and requirements of the new CRA legislation is having the proper attitude toward communities. For example, if the attitude in the bank is that CRA compliance is a nuisance and just another regulation to be dealt with, the CRA program may yield a passing CRA rating that is likely to be an economic disappointment. There is also some likelihood that there will be a shortfall in meeting community credit needs.
On the other hand, if the bank believes that it can make sound and profitable loans to facilitate community development and meet consumer financial needs, then it is possible to create a credit process which promotes community development as well as creating an economic return to the bank. I've said many times that I believe we've proven at Western that community-based lending can be profitable. Probably more important, however, is the fact that this type of lending does make a significant difference in the lives of the people in the neighborhoods.
In addition to having the proper attitude, being a successful community-based lender requires having a supportive board of directors and top management. We have selected some key outside-board members who not only share the same values we do as an organization, but also are strong supporters of our bank's involvement in community economic development. We've spent a lot of our bank's resources to make our vision and values a part of everyone's job.
In the case of our commitment to community-based lending, we want our leaders to be well-versed in the bank's community-lending philosophy. Our goal is to have all of our staff aware of our commitment to CRA. Western Bank does not meet every request, but has found that there is great value in listening.
A couple of months ago, we were visited by a banker from Des Moines, Iowa. My recollection is that her challenge was to create a small department within a relatively large bank, so that the bank could meet the new CRA guidelines. I was unclear whether top management was committed. I was surprised they felt a small group within that organization would solely have those responsibilities rather than a much broader group.
With the new guidelines effective July 1, documentation of our performance has become a key management concern and focus at Western. Management and employees have frequently met with community leaders and politicians concerning community credit needs, and various marketing research studies targeted to existing customers have been used in product and service design.
However, better systems of tracking and summarizing key issues now need to be put in place. The cost of doing this is definitely a concern to all of us. We are developing a system for gathering and organizing a variety of information. Files for each office will be set up which will make data readily available to the public or bank examiners. Generally, this information will include the CRA statement and notice, geographical loan data, public comment, CRA audit files and many other elements.
Most of the information necessary to document any bank's CRA program is probably available within the bank. Basic CRA training for all employees is essential in assuring that the proper information is gathered and forwarded to the persons responsible for CRA compliance. Such compliance is not going to be enough to get a pass rating from a CRA examiner; a bank is going to have to prove its performance.
If the main focus of a bank's program is through the minimum required to get by and to minimize CRA-type loan losses, the bank will miss an opportunity. If management is willing to expand its thinking to recognize that CRA guidelines and sound, profitable lending are not mutually exclusive, then CRA will likely prove to be an opportunity to enhance both economic and societal returns, rather than prove to be just a regulatory burden.