NOTEBOOK by Joy Hoffmann Molloy
The last month has seen a flurry of editorial activity and op-ed
pieces written about the newly enacted Financial Services Modernization
Act of 1999. Clearly, the debate isn’t over relative to its
potential impact and long-term value. Time and experience will
likely serve as the ultimate arbiters.
Debate and conjecture notwithstanding, the Federal Reserve Board
is headlong into its own flurry of activity to meet the March
2000 deadline for completion of the legislation's implementing
language. We expect this will include the new CRA provisions as
well. Although time is short, there are a few proactive steps
that financial institutions can take to ensure readiness for implementation
of the new law:
Develop a mechanism to internally assess and monitor
the CRA activities of financial subsidiaries and affiliates.
This is an area where CRA actually got some additional “teeth,”
since the new law mandates that all financial institution subsidiaries
of a bank holding company have at least a atisfactory CRA rating
in order to engage in any of the new activities granted under
the bill. If even one subsidiary is rated below satisfactory,
the expansion application will be denied.
Review current CRA agreements and create a more formal
tracking system for activities within these agreements.
Under the new sunshine requirements, both bank and their non-profit
partners will be obliged to report (on an annual basis) CRA-related
payments, fees, loans, investments, and services and their terms
and conditions. Non-profits must also report on the use of said
funds, including compensation, administrative expenses, travel,
entertainment and consulting/professional fees. Current thresholds
mandate reporting of cash payments and grants (individual or aggregate)
in excess of $10,000 and loans (individual or aggregate) in excess
of $50,000.
Consider formalizing a CRA self-assessment process and
establish close ties with your compliance examiners to make sure
you ’re on the right track. This will be especially
important for small banks with satisfactory or outstanding ratings
because they will now be examined for CRA compliance every 4-5
years. (Don’t forget that this only applies to CRA, and not
other compliance examinations!)
Over the next several months, Congress has charged the financial
services industry and its regulator with the task of developing
meaningful and workable implementation strategies. We look forward
to working with you to achieve this important goal.
Best wishes to you and your family for a wonderful holiday season.
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