Inner City Press Community Reinvestment Reporter Archive Number 4:  August-September, 1999

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September 28, 1999

    On Thursday, September 23, the Conference Committee on the financial modernization bills met, and conference chairman Jim Leach (R-IA) proposed that the Community Reinvestment Act issues be discussed this coming Wednesday and Thursday, Sept. 29 and 30. Senator Gramm, who blocked financial modernization legislation last year on explicitly CRA-related grounds, asked that the Conference immediately accept his so-called “sunshine” proposal, which, under threat of fines and non-enforceability, would require all written agreements worth over $10,000 made “in connection” with the CRA to be disclosed to regulators and the public (while prohibiting the regulators from enforcing the CRA agreements).

    Gramm said he doesn’t “know of a soul” opposed to his “sunshine” proposal, at which point Rep. Vento (D-MN) vociferously disagreed. Gramm then offered to have private meetings with Vento, Rep. Waters (D-CA) and others.  Rep. Waters "respectfully declined."  (White House Bulletin, Sept. 24 -- and see below).  Rep. Barney Frank (D-MA) asked, “Does that mean that we’ll have discussions of sunshine that are themselves not in the sunshine?” After the meeting, Gramm told CongressDaily that he believes the conference could be more productive is the “principals” could meet privately, contrary to Leach’s plan.  So much for sunshine...

   The publication White House Bulletin contacted Rep. Waters, requesting clarification of her position.  Ms. Waters said:  "My statement... was designed to say to Gramm this bill should not be used by you to dismantle CRA and we are not using it to try and expand CRA.  We want CRA to be maintained and we want it to be enforced, and that's all.  We are not trying to take it to the securities companies, or to the insurance companies, and this bill doesn't do that... They may see something in the bill they think is expansion and we may have two different definitions about what is expansion.  Right now CRA is enforced for mergers.  Whether it is a merger or an acquisition, we want CRA to be matintained as it is and to be enforced.  I want to be clear about that." (White House Bulletin, Sept. 24).  It is questionable that Ms. Waters' position is clear to her constituents.  Numerous California community groups have been engaged in work to bring the principles of reinvestment (and non-discrimination) to bear on insurance companies, from State Farm to Jackson National Life to American General.  If these are the new Democrat march orders, a purely "CRA neutral" bill, that is a change in position...

September 13, 1999

    On August 10, 1999, Inner City Press made a Freedom of Information Act request to the Office of the Comptroller of the Currency for all records reflecting the OCC’s communications with the Senate Banking Committee regarding the Community Reinvestment Act.

    On September 10, 1999, ICP received from the OCC four ten-ream boxes of documents, along with a cover letter stating that additional documents were being withheld under exemptions 5 (internal deliberation), 6 (personal privacy) and 8 (confidential bank supervision) to the Freedom of Information Act. While ICP is appealing these withholding, a review of the documents so far provided is illuminating.  We will describe the responses in detail, in the spirit of “the journalism of attentiveness.”

     Senate Banking Committee Chairman Phil Gramm (R-TX) and his staff have made at least seven document demands on the OCC. Many of the requests are duplicative and burdensome -- again and again, Gramm’s staff asks the OCC for copies of the OCC’s files on all CRA-protested applications, all information about “protesters,” and “any written agreements between either the bank and the protester or the bank and any non-profit group.” Gramm’s requests began in January 1999, and have continued through, at least, July 1999 (when Gramm requested all protests and agreements “for the first six months of 1999”).

     While Gramm was characterizing community groups which comment on bank merger applications as “extortionists” even before he became Chairman of the SBC in January 1999, Gramm’s 1999 requests for documents from the OCC reflect that Gramm had little evidence of any kind when he began making these charges, and little knowledge of which banks’ applications had been protested. For example, on March 2, 1999, Gramm’s staff wrote to the OCC, asking for “information regarding CRA during the application process as it pertains to the following banks:

1. Security National Bank & Trust Company of New Jersey -- 1997
2. Society National Bank -- 1996
3. First Union National Bank of North Carolina -- 1996
4. Fleet Bank National Association -- 1996
5. Texas Commerce Bank National Association -- 1996.”

     The OCC’s Director for Congressional Liaison Carolyn Zeul McFarlane wrote back to Gramm’s office on March 12, stating that “of those five institutions, only two of them had an application pending or decided in the year you requested where a CRA protest was filed. They are the applications filed by Fleet Bank of New York to merge with and into NatWest Bank in 1996 and the application by First Union National Bank of North Carolina to acquire Raleigh Federal Savings Bank in 1995. I have included... any document that the OCC received concerning the protest that would be made available to the public if requested.”

    First, more than half of Gramm’s requests were inaccurate -- there were no protested applications by the names banks in the year(s) named. Second, the OCC’s response makes it appear that the OCC limited its responses to Gramm to documents “that would be made available to the public if requested” -- that is, documents not exempt under the Freedom of Information Act.

     As noted in last week’s Report (see below), the FDIC did limited its production to Gramm to documents that are available under FOIA. The Federal Reserve Board, eager to “partner” with Gramm on financial modernization legislation, has not so limited its production. The Fed has given Gramm documents that are confidential by their own terms.

     The OCC’s FOIA response to ICP reflects that the OCC, too, has provided Gramm with documents that are confidential by their own terms. It appears that at least one of these documents was displayed, in blow-up fashion on an easel, by Sen. Gramm on the Senate floor in May. Parties who should have been notified, under the Privacy Act and Executive Order 12,600, prior to any decision to release the documents to Senator Gramm -- were not so notified. In terms of proper procedures, and respect for privacy, it’s FDIC 1, Fed and OCC, 0. And Gramm (who displayed this documents on the Senate floor, and has circulated seemingly slanderous memoranda to House Republicans), minus one.

     On March 10, Gramm’s staff sent a longer request letter to the OCC, asking for “information regarding CRA during the application process as it pertains to the following banks:

1. Bank of California (CA) - 1995
2. Colorado National Bank (CO) - 1994
3. Norwest Bank (CO) - 1994
4. Continental Bank (IL) - 1994
5. First National Bank of Chicago (IL) - 1995
6. Baybank Boston (MA) - 1994
7. Fleet National Bank of Massachusetts (MA) - 1994
8. Mellon Bank (DE) - 1994, 1995
9. First Fidelity Bank (MD) - 1995
10. Michigan National Bank (MI) - 1995
11. NDB Bank, N.A. (MI) - 1995
12. Chase Manhattan, N.A. (NY) - 1995
13. Valley National Bank (NJ) - 1994
14. Commerce Bank (NJ) - 1995
15. NatWest (NY, NJ) - 1994, 1995
16. PNC Bank, New Jersey, NA (NJ) - 1995
17. United National Bank (NJ) - 1995
18. Republic Bank for Savings (NY) - 1994
19. Republic National Bank of New York (NY) - 1994
20. National Bank and Trust Company (Norwich, NY) - 1994
21. First National Bank of Ohio (OH) - 1994
22. Integra National Bank/Pittsburgh (PA) - 1995
23. U.S. Savings Bank of Washington (WA) - 1995
24. Huntington National Bank (OH) - 1995
25. Washington Community Reinvestment Assoc. (WA) - 1995.”

     The OCC’s Director for Congressional Liaison Carolyn Zeul McFarlane wrote back to Gramm’s office on March 19, stating that “of those 25 institutions, only seven of them had an application pending or decided in the year your requested where a CRA protest was filed... I have included... any document that the OCC received concerning the protest that would be made available to the public if requested.”

    Again, the OCC implies that it is only giving Gramm documents that it would not withhold from the public under FOIA. But the OCC’s production makes clear that it provided Gramm with documents that are confidential by their own terms. Also, Gramm’s office can’t even distinguish between banks and community organizations (see item 25 in Gramm’s office’s March 10, 1999, letter).

    In June, 1999, Gramm staffer Joe Cwiklinski asked the OCC for “the number of CRA protest letters filed since 1977.” The OCC responded: “The OCC has received approximately 345 CRA protest letters... since 1977... This total does not include the oral testimony provided at the March 13, 1998, joint Fed/OCC public meeting on the First Union/Corestates merger.” Making clear that the OCC’s joint public meeting with the Fed on that 1998 merger -- is the only hearing the OCC has held on any merger since 1977.

    One interesting aspect of the OCC’s First Union - CoreStates approval is reflected by an April 15, 1998 letter from First Union’s SVP for CRA, Jane Henderson, to OCC (then-) Acting Chief Counsel Raymond Natter. First Union’s letter commits that “in the event that any First Union or CoreStates branch located in an LMI area in Delaware, New Jersey, or Pennsylvania is proposed to be closed in connection with this proposal within three years after consummation of the transaction, and First Union receives one or more written comments from local community residents... expressing concern about the proposed closure, First Union will convene a local meeting to discuss these concerns and possible alternative courses of action.... The meeting will be held approximately 30 days prior to the proposed closing date... Furthermore, the procedures described above will be implemented in Maryland, Virginia, and the District of Columbia for branch closings arising from the Signet merger in order to satisfy FUNB’s commitments with respect to branch closing meetings made in connection with that transaction.”

     First Union subsequently transferred some of its branches to Hudson United Bank, which in turn closed some of the branches. It is not clear if Hudson United took on First Union’s commitments, or if the purported “three year” commitments simply melted away, as branches are switched from one bank to another (as the Federal Reserve recently allowed in connection with Chase Manhattan’s sale of upstate New York branches to Manufacturers & Traders Trust)...

     The OCC also identified for Gramm’s office all “CRA-protested applications where protest was withdrawn, 1977-1998” -- a total of 15 applications. For five of these, the OCC could not even list the year. Of the ten year-specific application, one was in 1986, one in each of 1987, 1988 and 1993, four in 1994 (three of these were simultaneous applications by the same bank), one in 1997 and one in 1998.

    On September 9, 1999, Gramm announced that is he “ready” to confirm John Hawke as Comptroller of the Currency. “We have concluded that the Comptroller’s Office has taken action to respond to our concerns,” Gramm said. How this relates to the OCC’s production of four ten-ream boxes of CRA-related information, including information confidential by its own terms, to Gramm -- remains to be seen.

Legislative update:  also on September 9, Gramm said financial modernization legislation is slowing down, but “I don’t personally feel under pressure whatsoever... I’m confident I’m going to be chairman in the next Congress, and I’ll get it done [then]” That, too, remains to be seen... Gramm spokeswoman Christi Harlan highlighted that Gramm on Sept. 9 said that once the debates on financial modernization legislation are over, Gramm plan to have the Committee hold additional hearings on CRA. If so, with the documents provided with the Fed and OCC, including documents that the agencies continue to withhold from the public under the Freedom of Information Act. 

September 7, 1999

    On August 10, 1999, Inner City Press made a Freedom of Information Act request to the Federal Deposit Insurance Corporation, for all records in the FDIC’s possession relating to the FDIC’s communications with the Senate Banking Committee and its chairman about the Community Reinvestment Act. ICP has made (and reported on, see below, and Archives) similar FOIA requests to the Federal Reserve Board. The comparison: the Fed has given Gramm 35,000 pages on CRA; the FDIC has only given Gramm 3,000 pages, and redacted pages, at that. Nonetheless, the two boxes of documents the FDIC has provided to ICP show the FDIC’s solicitude to Gramm’s repetitive and burdensome requests -- requests that Gramm continues making, even as serious scandals continue to break in the banking industry: alleged money laundering at the Bank of New York, Republic and Deutsche Bank; a Japanese inquiry into “mis-valuations” by Republic National Bank. Apparently, to Gramm these activities are simply “the market at work,” while banks meeting with neighborhood groups and making commitments for increased community lending is an abuse “akin to slavery” (as Gramm has said). Strange Chairman, strange Committee...

August 30, 1999

     Congress is on vacation, and the regulators are out to lunch. Nationwide between August 23 and August 29, only seven reported newspaper articles even mentioned “community reinvestment.” In this relatively slow week, it’s time to review the declining scope of the Community Reinvestment Act, with particular focus on Internet banks, and subprime lending.

    At a community level, the problem posed by predatory lending is a more “in-your-face” issue than that of Internet banking (which simply excludes, rather than directly exploits) low income neighborhoods. North Carolina recently passed legislation to curtail some of the worst predatory practices (click here to view the final N.C. law);  the New York State Banking Department has proposed regulations which might do so in New York (click here for NYSBD's July 29 press release).  But one would expect that predatory lending by affiliates of banks (bank are covered by CRA) could be addressed by bank regulatory agencies, including when a bank acquires or creates such a lender. That expectation would be wrong, however.

    For example, BankAmerica on July 27, 1999 announced it was selling one of its subprime lenders, First Franklin Financial Companies, to National City Corp. of Cleveland, another bank holding company (which expanded its subprime lending by acquiring “Altegra” along with Integra in Pittsburgh two years ago). First Franklin claims to be the third largest “non-agency” residential mortgage lender in the U.S., making $1.8 million in subprime mortgage loans in the first half of 1999.

    When one bank is selling a major subprime lender to another, one might expect that there would be an application, subject to public comment, on the proposal. But one would be wrong. The Federal Reserve System, as of August 26, lists no such application; nor does the Office of the Comptroller of the Currency. The OCC has so “streamlined” its Part 5 regulations that national banks can simply give “post-consummation” notice, AFTER they’ve bought a company like First Franklin. Even larger acquisitions of mortgage lending operations can be done this way, through the OCC: for example, Chase Manhattan’s acquisition of all of Mellon Bank’s mortgage residential mortgage business, announced August 4. The OCC has been asked to close this loophole, but to date has refused, even as to subprime lenders.

    Most Community Reinvestment Act advocacy centers on mortgage lending; community groups all over the country have documented that banks’ volume of normal interest rate mortgage lending in low- and moderate-income communities has been decreasing, while subprime (high interest rate) lending in these communities has been increasing. But the regulators avoid these subprime lending issues whenever possible, either by “streamlining” their acquisition rules, or by interpreting fair lending rules as narrowly as possible. The Federal Reserve’s “fair lending specialist,” Robert Cook, participating in a teleconference briefing sponsored by the American Bankers Association on May 19, 1999, advised banks on “whether a subprime affiliate has an obligation to ‘refer up’ -- if a loan officer at a subprime affiliate knows that a customer will qualify for a better loan at a prime lender in its corporate system, does the loan officer have an obligation to make that referral? Cook [said] that at this point, no such referral is required for all customers.” BNA Banking Daily, May 20, 1999. This narrow interpretation of fair lending law is questionable: since borrowers of subprime affiliates are disproportionately people of color (due in demonstrable part to the companies’ marketing practices, and lending office locations), not to refer up qualified borrowers could quite conceivably constitute disparate impact discrimination. But the Federal Reserve’s expert has spoken, and almost given immunity to banks, at least as these issues are raised to the Fed.

   The Fed is similarly narrowing the Fair Housing Act regulation which prohibits discrimination by purchasers of securities backed by dwelling-related loans. Republic National Bank, for example, has been a major purchaser of securities backed by subprime loans issuer by Delta Funding, even after Delta Funding has been sued for discrimination by the New York Attorney General.  The Fed, in a pending proceeding, instead of asking what due diligence Republic does before buying subprime Mortgage Backed Securities, is simply asking for confirmation that Republic, as a purchaser, cannot tell Delta which loans to make. That Republic (and others) could and should decide not to buy MBS backed by loans there is reason to believe have been originated on a discriminatory basis -- is ignored by the Fed.

    The Office of Thrift Supervision has taken a slightly better position on this issue. In late June of this year, the OTS required Lehman Brothers, which does underwriting for Delta and other subprime lenders, to identify and avoid predatory pricing practices. Click here for more on this issue, in ICP’s Delaware Reporter.  But the OTS did not define the “predatory pricing practices” that Lehman must avoid. OTS deputy director Rick Riccobono told the National Mortgage News (July 17, 1999) that “[p]redatory lending is too difficult to define or regulate, ‘but you know it when you see it.’” The Federal Reserve either doesn’t know it, or denies knowing it, when it sees it. The OTS’ “vision” will be tested, beginning at an August 31 hearing on Green Tree’s application for a savings bank charter.

   The important issue of how the Community Reinvestment Act applies to Internet banks is also being missed by the regulators, and by Congress’ refusal to modernize the CRA. In recent months, Bank One has undertaken a major initiative, “” Bank One has run hours of television advertising for this bank, on both coasts, soliciting deposits from these markets (where Bank One denies any CRA responsibility). The regulators have not even required Bank One to file an application (on which the issue could be raised). is in fact NOT a new bank -- it’s simply a marketing name for Bank One’s First Chicago unit, which declines any CRA responsibility in most markets where Wingspan is soliciting deposits.

    Similarly, American Express has started an Internet bank, using the moniker “Membership B@nking.” American Express exemplifies the need to modernize CRA. AmEx is a major player in small business lending -- in fact, for example, it was the number one small business lender by number of loans in the Philadelphia market in 1998. AmEx also owns a bank, called Centurion Bank, that the Federal Reserve defines as a “non-bank bank.” But AmEx’s small business lending is not reviewed under CRA -- Centurion Bank is headquartered in Midvale, Utah, and the FDIC’s CRA exam of the bank focuses almost entirely on the Salt Lake City market, and on a “community development” (relatively minuscule grants) test.

    The other CRA status that is mis-used to evade CRA is that of “wholesale bank.”  Telebank, for example, which advertises and solicits deposits in big markets nationwide, was mis-designated a “wholesale bank” by the OTS. Now, Telebank says it wants to begin doing consumer and education lending nationwide, while E*TRADE applies to acquire it. E*TRADE maintains that it should only be subject to CRA in Arlington, Virginia, and the OTS refuses to comment.  See, e.g., American Banker of August 25, 1999, at 2. The issues has been squarely raised; now we’ll see what the OTS (and E*TRADE) do. The OTS has informed ICP that it will be providing it with “three quarters of an inch” of E*TRADE’s supplemental filings with the OTS, but the documents have not been received as of August 29. Developing...

  One interesting clarification on this Internet banking theme: Canadian Imperial Bank of Commerce, which asked for (and received) OCC approval for a new bank in Florida earlier this year, which would have “kiosks” in Winn Dixie supermarket branches as well as a web site -- now tells the Fed, in an August 24 letter, that “[t]he Bank will neither operate through traditional brick and mortar branches nor operate as an Internet bank. Instead, Bank customers will only be able to open bank accounts, make deposits and apply for loans through the Pavilions, not through the Internet or telephone... the Bank anticipates that existing customers of the Bank will be able to review account information, transfer funds between accounts and pay certain bills over the Internet.”

    First, that limitation was NOT made clear in the initial application, as least as it was provided to ICP. Second, CIBC did not apparently make this commitment to the OCC, which would be the primary supervisor of this proposed Bank. The OCC approval order, despite its length, does not mention this limitation at all. CIBC now tells the FRB things that it “will not” do (such as operate as an Internet bank), and that its customers will “only be able” to apply for loans at the kiosks. Who will enforce this? How long do these “commitments” hold true? As an example, the OTS requires new savings and loan holding companies to submit a three year business plan, and often states in its Order that if there is any material change to the Business Plan, the applicant must return for new approval (including new public notice and comment) before implementing any changes. Is the FRB going to impose similar conditions here? Or will the FRB allow this questionable (and apparently unverifiable) “commitment” to become part of the record (including the record “rebutting” ICP’s comments on CRA issues), and then have no way to verify if the commitments remain in force?

    CIBC’s August 24 implies that even supplements to a customer’s loan application will not be taken by telephone. Frankly, CIBC’s “commitments” are simply not credible. CIBC has previously alluded to Canadian “snow birds” (vacationers to Florida) as one reason for setting up this bank. But these snow birds could hardly perform all of the functions they would wish to perform, as Bank customers, only through the kiosks.

    Fourth, ICP contends that allowing customers to “pay certain bills over the Internet” would constitute “operat[ing] as an Internet bank,” which CIBC’s letter to the FRB says the Bank would not do...

August 23, 1999

     The absurd politics surrounding the Community Reinvestment Act continue on Capitol Hill, and at the agencies. The FDIC has informed Inner City Press that it has provided some 2,750 pages of documents to Senate Banking Commitment chairman Phil Gramm (R-TX), but is delaying in actually providing these documents to ICP. Gramm has sent a six-page memo to the FDIC and other agencies, claiming that the agencies have under-estimated the regulatory burden the CRA imposes on banks. Gramm has continued demanding documents from banks, and even, reportedly, from insurance companies, regarding their agreements with community groups. Three days of meetings between Conference Committee staffers have ended, with no progress made in reconciling the House and Senate versions of financial deregulation legislation, particularly on the CRA issues. Meanwhile the Federal Reserve refuses to extend comment periods on mergers, refuses to provide documents to the public, and is apparently coaching banks how to evades their responsibilities under CRA and the fair lending laws. Not a pretty picture: we’ll take it point-by-point:

    In an August 17 letter, the FDIC writes that “you requested, pursuant to [FOIA], copies of all FDIC records that relate to the FDIC’s communications with the Senate Banking Committee or any member of staff thereof, concerning the Community Reinvestment Act... Following a records search of appropriate files, the FDIC located approximately 2,750 pages of documents that may be responsive to your FOIA request.” This can be contrasted with the over 35,000 pages the Federal Reserve has provided to Gramm (see previous Reports, below). It is impossible, however, to fully assess the FDIC’s claim yet. The FDIC’s letter says that “some of the documents provided to the Senate Banking Committee may have been redacted by the FDIC prior to delivery to the Senate Banking Committee.” (Again for comparison’s sake, the Fed turns over to Gramm even documents that the Fed is legally precluded from giving to the public. The game appears to be that if Gramm then releases them, the Fed’s hands are clean. We’ll see...). And, while the FDIC states that “this office has categorized you as a representative of the news media,” instead of following its previous FOIA fee waivers to ICP, the FDIC has asked for more information. We’ll submit it, then report on the FDIC-to-Gramm documents in this space. It should be noted that the FDIC recent issued a list of the CRA ratings it issued in July, to dozens of banks all over the country -- and every single bank was rated Outstanding or Satisfactory.

    On August 16, Gramm sent the FDIC and the other agencies a six page memo by Wayne Leighton, “Senate Banking Committee senior economist.” The memo responds to the agencies’ May 28 estimate of the compliance (or paperwork) burden of the CRA. Some highlights of this ideological memo:

“Staff conversations with officials of a number of small banks and savings institutions have revealed... that a substantial portion of the overall CRA compliance burden is associated with maintaining information [such as] loan files and, as requested, detailed information on specific accounts... census tract information and detailed data on loan denials by census tract... correspondence with community groups.”

    Let’s take a look at this economist’s analysis. Banks keep loan files, and information on accounts -- because various laws, and safe and sound business practices, require them to. Gramm wants to count the “burden” of keeping account information as a CRA burden. But loan files are reviewed for safety and soundness (since banks are government-insured), and customers who deposit their money with a bank have a right to expect the bank to keep records. This is not a “CRA” burden.

   Also, while Gramm’s economist ridicules the fact that banks keep their correspondence with community groups, this is precisely the correspondence that Gramm is now demanding, including with threats of subpoenas, from a number of banks. How about the burden associated with Gramm’s disorganized and ideological “investigation” of CRA? Gramm is raising CRA compliance burdens, and is paralyzing the regulatory agencies with requests for thousands of pages of documents, while these regulators are clearly overlooking money laundering and other serious compliance violations at the banks they are supposed to be regulating...

    The Gramm memo continues: “To be a full evaluation of compliance costs... [i]t should also evaluate the costs of changed behavior by banks... For example, if regulatory emphasis results in banks increasing their grants and cash donations to advocacy groups, then this should be included. By the same token, if in response to the CRA banks make less profitable loans and investments, or if banks face higher delinquency and default rates or loan losses, then these costs also should be included. In addition, staff conversations with officials of a number of banks and savings institutions have led us to note that, while public aspects of the CRA exams may appear straightforward, significant portions of CRA examination may be confidential. These confidential aspects of exams may impose unseen but significant costs that also should be considered.” Emphasis in original.

   Beginning with the last point first: CRA examinations have confidential portions precisely at the request of banks. Until 1991, CRA exams were entirely confidential. In connection with the S&L bail out legislation, it was proposed that all CRA exam reports be made public. The banks themselves opposed this -- they did not want the specifics of fair lending or other violations to be made public. Gramm sees the word “confidential,” and alleges a scam, without even checking into why there are confidential portions of CRA exams. In fact, while his economist cites to “staff conversations” with banks, that CRA exams have confidential portions is made clear in statute and regulation (these laws probably explain the redactions to which the FDIC’s above-quoted letter refers). Perhaps Gramm is going to proposes that banks’ safety and soundness exams be made public, in the spirit of “sunshine.”

    Gramm’s economist implies that “CRA loans” have higher delinquency or default rates, but after more than a year, Gramm has presented no statistics or data to this effect, and most banks say otherwise. On the issue of grants, virtually all U.S. corporations make such grants, as easily verifiable in their annual reports. Coors Brewing Co., for example, supports a variety of right wing causes (in fact, it provided support to the Nicaraguan contras, a group that went well beyond “advocacy,” in the 1980s. What is the burden associated with the concept of corporate citizenship?

    Gramm’s economist’s memo then raises a number of questions, including:

“What is the impact on non-advantaged potential borrowers due to the decreased availability of loans when CRA regulations steer those loans to CRA-advantaged borrowers?”

    Gramm’s memo implies that upper- and middle-income consumers are suffering because of the CRA, and cannot get loans. This is an absurd claim: as even the Federal Reserve Bank of Atlanta’s president just said, banks are looking for loans to make, and can’t find enough borrowers. There is no evidence of upper- and middle-income consumers suffering a lack of access to credit, much less because of the CRA.

“How many resources are dedicated to grants, donations, and other special benefits to advocacy groups, and how many resources are dedicated to negotiating with and responding to the demands of these groups? This evaluation should include direct cash payments, credit extensions, free bank services, free access to the facilities or physical resources of the bank, staff time spent meeting with those groups, time and resources spent maintaining records of CRA-related correspondence, any resources directly or indirectly dedicated to these groups, and the opportunity costs of these resources.”

    Yes, it is true: there are banks that allow some non--profits to use bank branch space for their meetings, including credit counseling. For example, after ICP challenged NatWest in 1994, NatWest (now Fleet) opened a new bank branch on 161st Street, the first new bank branch in the South Bronx in fifty years. NatWest decided to allow Neighborhood Housing Services to use a room in the back of the branch for its meetings. Oh, the waste of space...

   The CRA regulations no longer focus on banks “maintaining records of CRA-related correspondence.” But Gramm expresses outrage to the banks which decline to provide him with copies of all of their correspondence with particular community groups. Which is it?

    Finally, Gramm’s memo’s repeated use of the term “advocacy groups” is telling. In fact, most banks’ space donation, for example, are to non-advocacy, social service groups, for such activities as credit counseling. Gramm wants to distinguish between some non-profit organizations and others, based on whether the groups “advocate” (that is, submit public comments during the statutory periods in which the regulators solicit comments). Such a distinction runs afoul of the First Amendment -- but apparently that’s not an economist’s concern...

    Gramm’s memo goes on to claim that CRA “encourage[s] marginal banks to exit the industry,” (there’s no evidence of this) and that the agencies’ study should include bank’s “lobbying” costs. These costs are easy to assess -- they’re required to be reported by the Federal Elections Commission. Click here to view Gramm’s campaign contributions from banks. As Gramm’s memo states, “[f]rom a societal point of view, these resources are essentially wasted, in that they do not underwrite loans or provide any financial services... Since in the long run, banks incorporate their rent-seeking costs into their overall cost of operations, these increased costs must raise prices for the consumer...”. So, the next time you go into your bank, ask them how much their campaign contributions, including to Senator Gramm, have raised the prices the bank charges you. But that’s another study...

August 9, 1999  -- Update on the Federal Reserve’s (Anti-) CRA Pipeline to Gramm

        On August 6, ICP received from the Fed 500 pages reflecting its communications about CRA with the Senate Banking Committee, from April to June 1999. The majority of the document date from early May, right when the Senate’s anti-CRA version of financial modernization legislation was being debated on the Senate floor. Gramm’s staffers called the Fed up to three times a day for information that would help to attack CRA; the Fed’s internal e-mail reflect an “all-hands-on-deck, let’s-help-Gramm” atmosphere at the Fed. Also noteworthy is the number of Fed staffers called onto this project: the Freedom of Information unit (thereby delaying the Fed’s responses to requests from the press and public), and the Fed’s CRA analysts (thereby reducing the scrutiny given the protested merger applications during this time period).

Even the Fed’s Secretary (who rules on community groups’ request for extensions of comment periods, and expedited FOIA requests) and the Fed’s Associate General Counsel (who oversees preparation of draft Board orders on mergers) were pulled into the loop of responding to Gramm’s requests. It would seem that the Fed should build a “fire wall” between its staff who rule on the public’s CRA-related requests, and those responding to Sen. Gramm’s requests for information to use in attacking CRA. Otherwise, it would appear possible that a pall is cast over the Fed senior staff’s day-to-day CRA-related decisions. “What would Senator Gramm think of this?” -- is the question left hanging over each of these decisions. Meanwhile, the Democrats (and moderate Republicans) are requesting little to no information from the Fed. The squeaky wheel get the grease. Sen. Gramm and his staff have created a greater burden, and more backlog, at the Fed than any number of community group comments ever could. And the Fed staff now operate in the atmosphere created by Senator Gramm...

   As shown below, the Fed has been preparing lists of protested applications, highlighting all applications on which protests were withdrawn after they were filed...

The blow-by-blow, in the spirit of “the journalism of attentiveness”:

      On April 12, 1999, Beverly Smith of the Fed’s Community and Consumer Affairs department (DCCA) wrote to ten other Fed staffers, regarding the “latest request from [Sen. Gramm’s staffer] Dina Ellis dated 4/8/99.” Dina Ellis’ letter “request[ed] the same set of documents from us as before, but this time for the last 6 months of 1997, that were protested on CRA grounds.” The Fed put together a “protest list,” and made copies of “the relevant CRA protest letters.”

Later on April 12, 1999, Fed staffer Helen Troy assigned document collection for various 1997 protested applications to other staffers. Ms. Troy asked staffer Peggy Naulty, about Huntington/First Michigan: “It looks like you only relied on Huntington’s 10/17/96 PE (which I cannot get on the OCC’s website). You mentioned that First Michigan’s 13 subs were “Sat.” or better. Does this mean that you did the ratings screen and did not actually use the First Michigan PE’s?” [Note: “PE” stands for “Performance Evaluation,” otherwise known as a CRA exam. The implication is that the Fed did not even read the actual examination reports for Huntington, but only relied on the “Satisfactory” ratings. 98% of banks are awarded Satisfactory or Outstanding ratings. If the Fed has taken to relying on the mere ratings themselves, the Fed has impermissibly implemented the type of safe harbor that the regulators considered, and rejected, in the new CRA regulation].

Ms. Troy assigned the Chase Manhattan, Los Angeles application to staffer Charles Fleet, who then pointed out that “The Chase LA case was not mine. Peggy [Naulty] was the lead, and you [Helen Troy] co-signed the memo. I don’t have any PE’s in my files for the case (I helped out with the branch analysis.” To which Ms. Troy responded: “Oops -- I had you in my mind as the Chase guru -- you’re right, it was Peggy and me.” This was followed by an e-mail from Peggy Naulty to Beverly Smith, Charles Fleet and Helen Troy, stating “I did find a copy of the Chase 10/95 PE, in one of Charles’ old files...”.

On April 14, 1999, Fed staff Pat Robinson wrote to the Federal Reserve Bank of Atlanta, stating: “The Senate Banking Committee has requested documents related to CRA protests in cases before the Board in 1998. For whatever reason, Board Records does not have a key document in the Regions Financial Corporation / First Commercial Corp. case -- the protest letter from Mr. Zippert, Greene County Democrat. Could you please... fax me a copy? Thanks!”

Then, Ms. Robinson wrote to another Reserve Bank, stating that “for whatever reason, Board Records does not have a key document in the Susquehanna Bancshares / [Cardinal Bancorp] case (decided 11/23/98) -- the original protest letter from New Jersey Citizen Action (I believe the letter was dated 8/12/98). Could you please... fax me a copy? Thanks!” Ms. Robinson also wrote to the Boston Reserve Bank, asking for “one protestant letter -- Judy Grupenhoff, proprietor of InterNetworks (rec’d 1/13/98).”

Then, Ms. Robinson wrote to the FRB of Richmond, stating that “for whatever reason, Board Records does not have some key documents in the Suntrust / Crestar case -- the Protestant letters (ironically, Records has the favorable comments)!!! Could you please... fax me a copy? Thanks!”

The Richmond Reserve Bank forwarded this request to the Atlanta Reserve Bank, which supervised Suntrust. Wayne Smith, Lisa DeFrances and Julie Mizell coordinated the response, digging up all of the protest letters from “the Restricted package.” [Note: it appears that the Federal Reserve Board in Washington, on that major merger, only considered the favorable comments, while leaving the comments opposing the merger down at the Atlanta Reserve Bank].

The Fed’s Congressional Liaison Office then chimed in: “My records show that the January 25 and February 18 letters have already been answered... Anyway, no problem in sending the material up by messenger.” Pat Robinson relied: “To date, the Jan. 25 and Feb. 18 letters have been only partially answered -- e.g., the Board approval letters and the CRA ratings and examination reports of the relevant institutions have been provided. We’ve been compiling documents to answer the rest of their request -- the comment letters and documents related to the protests and how the protests were resolved.” Beverly Smith added: “This particular set of boxes relate to the 1/25 and 2/18 Dina Ellis letters. Once all of the 1998 documents go, then these letter can be closed out. Her letters dated 3/2 and 3/10 go to specific cases in 1994-1997 and her most recent one (4/2) requests the same information for the cases filed in the last 6 months of 1997.” Ms. Smith added to FRB Associate General Counsel Scott Alvarez: “Re case files to Gramm -- I don’t think FUNC/Corestates has gone yet.” Mr. Alvarez responded: “Thanks for the info! Scott”.

On May 3, 1999, Pat Robinson wrote to the Fed’s FOIA office that “[t]he Senate Banking Committee is complaining that it’s taking too long for us to send the requested documents to him.... We have about 22 other cases still to process. Therefore, can Shirley get some help in pulling the documents. We need to finish all the cases as quickly as possible.”

[NOTE: By this time, Gramm’s staff’s five requests have taken full days’ staff time from more than a dozen Fed staffers, having involved the Fed’s Associate General Counsel, and have resulted in delays for the press’ and public’s Freedom of Information Act requests. The Fed has not made any complaint to Sen. Gramm -- he is supporting a version of financial modernization legislation which would favor the Fed over the Treasury Department. And so the production continues...].

    Senate Banking Committee Democratic staffer Patience Singleton also chimed in with a request: “to discuss the FDIC’s small bank examination procedures.” Beverly Smith wrote: “Patience Singleton (Sen. Gramm’s staff) left me a voicemail... Win, I’ll leave it up to you if you think we need to get these in writing since the phone calls keep coming in.” The Fed staffers misperceived Ms. Singleton as being on Sen. Gramm’s staff -- when she’s on the Democratic staff. Soon thereafter, Fed staffer Peggy Naulty opined: “We should not discuss other agencies’ procedures.” ICP note: Particularly not with a Democratic staffer -- it’s Gramm that the Fed is placating / courting.

      In terms of difference between the FDIC and the Fed on CRA, another e-mail from Beverly Smith recites that a comment against Compass Bancshares that the Fed decided not to treat as a protest (“we considered it a complaint since it involved a specific loan... rather than a more general comment about the bank’s lending practices”) -- the FDIC DID treat as a protest. Senator Gramm, clearly, would be happier with the Fed’s narrower reading of CRA...

    Interestingly, on May 25, Patience Singleton faxed the Fed a draft proposal by Senator Santorum which “would permit banks to receive full CRA credit for purchasing securitized CRA loans and securities.” Question: why are the Senate Democrats doing work for Republican Senator Rick Santorum of Pennsylvania?

     The next call was from Joe Cwiklinski, who IS a Gramm staffer. Cwiklinski called asking “what the case breakdown was for various years by type of application.” Helen Troy asked Fed Congressional Liaison Win Hambley, “Does someone need to ask Mr. C to put his request in writing? If so, who should make the call?” [Note: the Fed staffers appear to be concerned about offending even Gramm’s third tier staff -- meanwhile, the press’ and public’s FOIA requests are being ignored, and the Fed staffers are refusing discussions with Democratic staffers].

The following day, Ms. Troy sent another e-mail: “Mr. C... asked if I would very generally characterize the protests as pertaining to mergers and I told him that most of the applications on which we receive protests are Section 3’s (BHC Act), which are mergers and acquisitions... He said he was satisfied with this information. Now -- do I need to send a letter to Mr. C confirming our conversation and containing this information (lest I be misquoted)?”

[NOTE: Gramm wants to claim that community groups only raise issues on time-sensitive mergers, allegedly as a way to “extort;” therefore, Gramm’s staffer is trying to get the Fed to “confirm” that most protests come in on merger applications].

On May 3, Fed staffer Pat Robinson wrote, under the topic “Next Response to Senator Gramm,” that “we plan on continually ‘feeding’ the Committee additional documents once or twice a week until all its requests are satisfied. FOIA is getting additional persons to help pull documents and I’m getting additional review help, so we should be able to keep providing the Committee with documents on a more regularly scheduled basis.” A full paragraph has been redacted from this e-mail, as it was provided to ICP. ICP is appealing...

On May 4, Beverly Smith wrote to a dozen Fed staffers, regarding other CRA-related requests for documents, from the General Accounting Office and the Congressional Budget Office. “We need to count cases in 1998 where both the applicant and the target are over $1.0 billion. Then we need to estimate how many of those it would be “necessary” to have public meetings.” [Note: This is a proposal in the House’s version of financial modernization legislation].

On May 5, Helen Troy added: “By our count, there were 67 Board applications in total in 1998. Of these, the applicant’s assets were $1 billion or greater in 53 instances, of which 31 were subject to CRA. In 19 instances, the assets of both the applicant and target exceeded $1 billion.” Then, the Fed has redacted the rest of the e-mail. ICP is appealing.

On May 6, Beverly Smith circulated “a draft letter from Win’s signature on some CRA stats that Joe Cwiklinski (Sen. Gramm’s staff) had requested. He called me about 3 times yesterday for them and I gave him some in draft late yesterday due to the urgency... I know that folks are tied up with the legislation, but could you make sure someone sees this message and let’s me know if there is anything more I can do to assist?”

[ICP note: May 6 is when S. 900 was being debated on the Senate floor. Gramm and his staff wanted any statistic possible from the Fed, to attack CRA. The Fed (whose other staffers were also “tied up with the legislation”) wanted to “assist” in any way possible...].

On May 7 (after the S. 900 vote), Helen Troy wrote to Beverly Smith: “I just spoke with Joe C. to tell him that we can’t readily break out the protest statistics by type. He was about to call us anyway. He received Win Hambly’s letter, but the statistics apparently didn’t including the rural / non-rural break out and he wants to know whether those are coming...”.

Also on May 7, Pat Robertson asked the Federal Reserve Bank of San Francisco for more documents (protest letters on the Santa Barbara Bancorporation / Citizen State Bank case, 1997), adding that “I apologize for the disruption that our requests undoubtedly are causing!”

NOTE: Yes, Gramm and his staffers are “causing disruptions” in the Fed’s FOIA and DCCA units, resulting in less detailed consideration of pending public comments on mergers, and slower response to FOIA requests from the press and public. But the Fed is not complaining to Gramm, because Gramm’s legislation favors the Fed over Treasury. That’s the most benign explanation...

A May 10 e-mail makes clear that the FRB in Washington did not even have copies of the protests that were submitted in the Star Banc / Great Financial Corp. case of 1997. Another May 10 e-mail shows that FRB Associate Secretary Bob Frierson’s been pulled into the response team, raising the “body count” of senior Fed staffers who can no longer react to any other requests, including requests from the public. A May 11 e-mail makes clear that the FRB in Washington did not even have copies of the protests that were submitted in the NationsBank / Barnett case of 1997.

In a May 12 e-mail, Pat Robinson writes that “the First Bank System / U.S. Bancorp case is included among the cases for which the Senate Banking Committee has requested documents related to CRA protests. For some reason, Board Records does not have the comment letters listed below... Gary Sandusky, Center for Community Change (5/13/97), Ben Langston, Department of Housing Services, Hillsboro OR (4/30/97,” etc..

On May 17, Beverly Smith e-mailed 12 Fed staffers about “the incoming letter I just received moments ago in which Dina [Ellis] has requested info. related to CRA protests for July 1996 through July 1997. She wants ‘only’ the following... the written protest(s) or comment(s) submitted concerning the application, [and] any written agreement[s] between either the bank and the ‘protester’ or the bank and any non-profit group. She wants the info by 5/26/99.”

NOTE: This is now Gramm’s focus: the protests, the protesters, and banks’ agreements with the protesters “or any non-profit group.”

On May 20, Carolyn Welch of Fed staff sent an e-mail stating “we do not maintain in our files the documents that she requested in the last two bullet points of this letter: 1) written protests or comments submitted concerning the application, and (2) written agreements between the banks and protesters and non-profit organizations. My understanding is that this information is being compiled by Records and FOIA....”.

    And so, the Fed became trying to compile for Gramm “agreements between the banks and protesters or non-profit organizations”....

Later, Pat Robinson e-mailed Beverly Smith, “re: new fax from Dina Ellis requesting more!: This overlaps with the 94-97 case documents that she already requested and which we already have provided... What gives? Can we get her to allow us to respond to only those cases that she hasn’t already requested?... In any event, we should have another strategy meeting with Jennifer [Johnson], FOIA and Records because of the number of cases involved and the extremely short time frame.” The next morning, Ms. Smith e-mailed Ms. Robinson: “Scott [Alvarez] agrees that we should only respond to the cases that were not covered by the other requests.”

     Note that the FRB’s Secretary (who rules on community groups’ request for extensions of comment periods, and expedited FOIA requests) and the FRB’s Associate General Counsel (who oversees preparation of draft Board orders on mergers) are pulled into the loop of responding to Gramm’s requests. It would seem that the Fed should build a “fire wall” between its staff who rule on the public’s CRA-related requests, and those responding to Sen. Gramm’s requests for information to use in attacking CRA. Otherwise, it would appear possible that a pall is cast over the Fed senior staff’s day-to-day CRA-related decisions. “What would Senator Gramm think of this?” -- is the question left hanging over each of these decisions. Meanwhile, the Democrats (and moderate Republicans) are requesting little to no information from the Fed. The squeaky wheel get the grease. Sen. Gramm and his staff have created a greater burden, and more backlog, at the Fed than any number of community group comments ever could. And the Fed staff now operate in the atmosphere created by Senator Gramm...

     The Fed then prepared a list of protested applications, highlighting all applications on which protests were withdrawn after they were filed...

* * *

     Meanwhile, on July 30, a White House official again went public with the Administration’s intention to nominate Chase Manhattan’s ex-CRA officer Carol Parry to the Federal Reserve Board. As previously noted, Ms. Parry has spoken in favor of safe harbor from comments -- one of the provisions in S. 900 that Clinton has threatened to base a veto on.

    From the public record, see U.S. Banker magazine of August 1997, at 44 et seq.:

"USB: So you’d like a safe harbor provision?

Parry: Yes... There was a lot of debate about [a safe harbor] in the process of re-developing the regulations. And there was too much negative reaction by the community advocates. It may be that a safe harbor for banks would be a good idea. It went down in flames because the industry couldn’t support it"

    See also, New York Newsday of April 30, 1996, at A29:

"'It's our view that outstanding banks should be given some consideration,' said Parry. Bankers want a safe harbor -- freedom from challenges to their merger applications -- if they get good ratings."

         In a subsequent interview, asked for amplification of her written statement to ICP that “banks with ‘outstanding’ ratings should be given a positive incentive to become and remain ‘outstanding.’ I am certain there are a number of ways that this could be done, with the safe harbor for ‘outstanding’ being only one option,” Ms. Parry stated that she has not given this much thought, but that one idea would be some form of expedited approval for banks with Outstanding ratings.

     The Administration presents its anticipated nomination of Ms. Parry as being positive for CRA. Others are less sure. Is, for example, an advocate who has worked defending companies from charges of employment discrimination -- to be viewed as a proponent of equal employment laws? Would those knowledgeable about the Equal Employment Opportunity Commission view such a nomination to the EEOC in such a positive light? One might expect such questions to be raised in any confirmation hearing -- except that Senator Gramm has effectively outflanked the minority on his committee, and has even sidled up to Democrats who need industry contributions, such as Chris Dodd (D-CT) and Chuck Schumer (D-NY) (see N.Y. Post of July 18, 1999: “Schumer has managed to fashion collegial relationships with some conservative GOP senators, especially Phil Gramm of Texas, Chairman of his Banking Committee”).

      How does Gramm set the tenor? Well, most recently, sources tell ICP that Gramm wrote to BB&T, a bank in North Carolina, demanding disclosure of all of that bank’s Community Reinvestment Act agreements with community groups. Because one agreement was confidential by its terms, BB&T wrote back and declined. Gramm wrote again, more insistently. And, with the group’s consent, BB&T provided the agreement. (And, on July 28, BB&T announced a deal to buy Premier Bancshares of Georgia, for $624 million...).

      Some question whether Gramm will ever hold the hearings on CRA that he has alluded to for months now. The Fed seems intent on providing Gramm with any ammunition it can, even providing documents that Gramm didn’t request (see below). The Fed’s Dallas Reserve Bank continues to crank out amateurish research supporting Gramm’s claims. See, most recently, this Reserve Bank’s Economic and Financial Review for the second quarter of 1999, “The CRA - Safety and Soundness Pinch,” by Jeffrey Gunther. Gramm’s allegations, his attacks on regulators who even suggest an expansion of CRA assessment areas (most recently, Gramm’s attack on the Office of Thrift Supervision), have thrown a cloud over communities’ rights, and on enforcement of CRA and fair lending laws.

      For example, in a recent teleconference meeting held before the OTS’ upcoming informal meeting on Conseco’s and Green Tree’s application for a thrift charter, the applicants’ representatives explicitly brought up Senator Gramm, implying that in the present political climate, it is virtually pre-ordained they will receive approval, whatever Green Tree’s lending record. Perhaps Gramm never needs to hold his hearings -- simply repeating ad nauseum his allegations has had the effect of freezing the regulatory agencies, and emboldening those institutions which are resistant to CRA. An irony is that Gramm is ignoring serious problems in the financial and banking industries. The Wall Street Journal recently revealed that mid-tier investment banks are demanding stock and options from small companies, simply to issue research reports on the companies. It would seem that the Senate Banking Committee would look into THAT, but Gramm’s said nothing. The New York Times of July 27 reported the growing scandal of Citigroup’s involvement in money laundering -- again, Gramm has said nothing. Gramm does not think it necessary to continue to require the Federal Reserve chairman to testify to the Senate about economic conditions and the Fed’s actions, even twice a year. To Gramm, it’s BB&T Community Reinvestment Act agreement with a community group that’s the problem, or the OTS’ brainstorming about the appropriate CRA assessment area for new-style thrifts which lend and collect deposits nationwide. Gramm and his ilk have turned on its head one of the chief tenets of journalism (and public service) -- they’re goal has become to afflict the afflicted, and to comfort the comfortable. Hey -- it’s more lucrative...

     Until next time, for or with more information, contact us.

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