Lindsey: CRA Reform Will Add Red Tape

By Cummins, Claudia | American Banker, October 7, 1993 | Go to article overview

Lindsey: CRA Reform Will Add Red Tape


Cummins, Claudia, American Banker


WASHINGTON - Federal Reserve Governor Lawrence B. Lindsey warned Wednesday that reform of the Community Reinvestment Act will add to the financial and regulatory burdens of the banking industry, at least in the short run.

Even if the President's initiative to refocus the law eventually cuts the paperwork burden, adjusting to the new rules will impose heavy costs on the industry, he said.

"Even the most brilliant regulatory reform will involve a short-run increase in costs," Mr. Lindsey said. "Whenever we change the rules of the game, costs must go up."

Mr. Lindsey made his comments at a symposium sponsored by Social Compact, a group of financial companies trying to strengthen lending in underserved areas. More than two dozen bankers, community activists, legislators, and regulators participated in the roundtable discussion.

President Clinton has asked the banking regulators to reform community reinvestment laws by yearend so they focus more on results and less on paperwork. Three of the four regulators involved in the process were at the roundtable Wednesday, and expressed some doubt that they will be able to meet the President's deadline.

|A Bit of a Stretch'

"I don't know whether we'll make it by the end of the year," said Jonathan Fiechter, acting director of the Office of Thrift Supervision. "It's probably a bit of a stretch."

Mr. Lindsey reiterated comments he has made several times in recent weeks that reforming CRA could backfire, imposing even greater burdens on the industry without increasing lending to the underserved.

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