Greenspan Supports CRA Reform but Warns of 'Credit Allocation.' (Federal Reserve Board Chairman Alan Greenspan; Community Reinvestment Act)

Article excerpt

WASHINGTON - Federal Reserve Board Chairman Alan Greenspan on Tuesday pledged his support for overhauling the Community Reinvestment Act, but said regulators must carefully consider whether their effort will "cross the line into credit allocation."

In his first address ever on community reinvestment, Mr. Greenspan told activists that if agencies become too involved in explicitly directing where loans are made, the banking industry and the communities they serve will suffer.

"I don't think you'll find any argument on this point from any of the agencies, but it will be important for all of us to remain vigilant to the risk of de facto credit allocation that is not sanctioned by the Congress, at the same time we are disavowing any such intention," Mr. Greenspan said.

Proposals for CRA Reform

In a speech before the National Community Reinvestment Coalition, Mr. Greenspan also pledged to community activists that his agency has "upgraded" its emphasis on CRA and fair-lending issues.

The Fed chairman's address comes as regulators other public comments on their proposal to reform CRA, which the president requested last July.

While the four banking agencies jointly wrote the plan, which would set tough new evaluations for big banks, Fed officials raised a number of concerns and threatened to vote down the final rule if public comments demonstrated that it is unworkable.

In his address, the Fed chairman neither endorsed nor attacked the reform proposal, but said that the plan needs to be "closely, examined."

Veiled Criticisms

"The core question is whether the new complicated evaluation system will better advance the cause of CRA for all concerned." Mr. Greenspan said. "We will, need to rely heavily on the comment process for this answer."

Despite his veiled criticisms of the reform plan, community activists responded favorably to Mr. …