
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, December 10, 1993                   TAG: 9312100177
SECTION: BUSINESS                    PAGE: B-12   EDITION: METRO 
SOURCE: MAG POFF STAFF WRITER
DATELINE:                                 LENGTH: Medium

BANKS LIKE NEW REGULATIONS . . . SORT OF

Western Virginia banks generally reacted favorably to proposed rules that would set stiff standards and prod banks to make loans and open branches in poor and minority neighborhoods.

The new regulations, announced Wednesday, can be implemented without congressional action. They would grade banks on their lending, service and investment in low-income neighborhoods.

Going beyond current rules that focus only on home-mortgage lending, the regulators would require banks to disclose their records on consumer and small-business loans as well.

Banks that get poor grades for performance could be fined or ordered to make improvements, according to Comptroller of the Currency Eugene A. Ludwig, principal author of the plan.

The most severe step regulators can take now is to turn down a bank's application to open new branches, make an acquisition or take some other step that requires government approval.

"The only thing that ought to matter on a loan application is whether you can pay it back, not where you live," Treasury Secretary Lloyd Bentsen said. The goal, he said, "is to make credit more readily available for small businesses, small farms and in distressed areas of our country."

Warner Dalhouse, chairman of Roanoke-based First Union National Bank of Virginia, said bankers knew the new regulations were on the way.

He said First Union has always had the top rating of satisfactory, but "now they're tightening the screw."

"We expect to comply not only to the letter of the law, but also to the spirit of the law," Dalhouse said.

Douglas Waters, regional executive officer in Roanoke for NationsBank, called the rules a step in the right direction, especially if they reduce paperwork. That would not help NationsBank, he said, but should assist "some small bank brethren."

Under the federal regulators' new plan, big banks will have to make more reports to the government than they do now. But regulation will be radically reduced for smaller institutions - the 75 percent of the nation's banks and thrifts with assets of less than $250 million.

Waters also said it would be an improvement to measure results rather than activity. "Actual loan volume is far more effective than reams of paperwork."

Stressing he had not yet seen the rules but only news accounts of the proposal, Waters said branch locations may be a factor in how easily a bank can comply with them.

Location could make compliance onerous, he said, because even construction of new banking centers might not lead directly to new business from low-income customers.

Carson Quarles, president of the southwestern region of Central Fidelity Bank, declined to comment because he had not seen the report. Crestar Bank officials also declined to comment until they had seen the government report.

The plan won the immediate endorsement of both community lending activists, who cheered the tougher enforcement of laws against discrimination in lending, and the national banking industry, which applauded steps to simplify regulation.

The proposed regulations would apply to all banks and savings and loans, both state and federally chartered.

The process of implementing the plan began Thursday, when the Federal Deposit Insurance Corp. formally proposes the new regulations, which were drafted in cooperation with the comptroller's office, the Office of Thrift Supervision and the Federal Reserve Board. Under the usual procedure, the public will have 60 days to comment and suggest changes before each of the agencies takes final action.

Under the new scheme, regulators would operate on the principle that banks should provide the same level of services in disadvantaged areas as in more affluent neighborhoods.

In other words, a bank that makes 25 percent of all the loans made in a metropolitan area would be expected to provide 25 percent of the loans made in that area's distressed inner-city neighborhoods.

The Greenlining Coalition, an organization of 19 minority business and consumer groups, called the plan a "historic first step in revitalizing inner cities and spurring economic development and job creation."

Lending to small businesses in poor and minority neighborhoods is becoming the top priority for community groups, which long have complained about discrimination in mortgage lending, said Bob Gnaizda, the organization's counsel.

The Post contributed to this story.

by CNB