How Big Banks Can Go Beyond 'Satisfactory' Regulatory Ratings

Many minority-led church groups are working closely with the federal regulators and the National Asian American Coalition in encouraging financial institutions to achieve Dr. Martin Luther King's "I Have a Dream"approach to economic development and community reinvestment.

As representatives of these organizations, we are heartened and encouraged by Comptroller of the Currency Thomas Curry's recent speech at American Banker's Regulatory Symposium. Curry's position that banks should move far beyond "satisfactory"ratings and that regulators will have "heightened expectations"when auditing internal controls are especially important to Main Street communities. They are also important in attempting to meet King's inclusionary message of fifty years ago, which foreshadowed the 1977 Community Reinvestment Act.

For too long, large banks and the vast majority of mid-size banks have ignored Main Street needs. With the rarest of exceptions, no one from Main Street is on any large bank's board of directors. Further, with only a few exceptions, financial institutions' strategies are focused on profits and avoiding federal government penalties, rather than on how they can ensure the growth and well-being of their retail customers.

Curry's "heightened expectations"for large banks should and must include whether our communities are substantially better off as a result of their presence. Otherwise, the subsidies that the people provide to the banking industry will be ill-spent, particularly during a period of budgetary constraints.

This approach is consistent with the 150-year history of the OCC, as Curry pointed out to a thousand community leaders and more than two dozen banks in his speech and comments at the National Asian American Coalition's recent conference. Curry cited this advice that one of his predecessors provided to banks a hundred and fifty years ago: "Pursue a straightforward, upright, legitimate, banking business … 'Splendid financiers' is not legitimate banking, and ‘splendid financiers' in banking are generally either humbugs or rascals.”

Every large bank has different needs and different aspirations. It is, however, up to the Comptroller of the Currency and other federal regulators, such as the Federal Deposit Insurance Corp. and the Federal Reserve, to set especially high standards that create economic development, jobs and healthy communities throughout our nation.

Main Street and faith-based communities have a few specific suggestions for the OCC and other regulators that we expect will follow the leadership standards set forth by the Comptroller.

First, all financial institutions that have $10 billion or more in federally-insured deposits should be included within the Comptroller's aspirational standards of going well-beyond "satisfactory"ratings. Therefore, CRA ratings should be revamped and very high standards should be required before a bank receives an "outstanding"CRA rating.

Second, no mergers or acquisitions should be approved unless a large bank has either an "outstanding"rating in all categories (lending, service and investments) and/or submits, after receiving community input, a future CRA plan that will ensure a subsequent "outstanding"CRA rating.

Third, all large banks, as part of this process, should annually hold community Main Street forums attended by their CEOs and lead directors. The bank should then file a report on these forums with the appropriate regulator and include comments and input from the community.

Fourth, socially responsible community investments should reflect the asset size or the FDIC-insured deposit base of the financial institution.

Fifth, innovative programs should be required to maximize the achievement of the American Dream of responsible homeownership shared by the overwhelming percentage of Americans, including new immigrants.

Sixth, innovative plans to help our nation's more than five million small minority-owned businesses (many located in underserved communities) through lending and technical assistance should be instituted to substantially complement and/or supplement the generally inadequate Small Business Administration programs.

Seventh, the limited financial education programs previously supported by the banking industry must be drastically overhauled. This includes major investments in K-12 financial education and a major overhaul of financial education to assist communities to withstand a broad array of sophisticated, but unethical practices. This includes the practices of unregulated institutions, such as payday lenders and debt collectors.

Lastly, all of the banking regulators should hold joint annual bank/community forums in major areas of the nation. These forums should include substantial input from Main Street that could assist regulators and the banking industry in achieving well-beyond "satisfactory"performances.

Anthony Hughes is chair of the Social Action Committee of the San Diego County Interdenominational Ministerial Alliance. Sergio De La Mora is senior pastor of Cornerstone Church of San Diego. Both partner closely with the National Asian American Coalition.