Thursday, August 12, 2010

State Treasurer Giannoulias Proposes Greater Transparency on Banks


Illinois State Treasurer Alexi Giannoulias today will recommend tougher federal accountability and transparency measures for banks to meet community reinvestment act guidelines.

Giannoulias will submit written testimony, telling federal bank and thrift regulators that when the Community Reinvestment Act ratings of banks were first made public in 1990, one in 10 financial institutions failed their CRA exam. Today, the number is less than 2 percent, yet millions of Americans are still unbanked or victims of predatory lending.

“On one hand, we have almost every bank in the nation receiving a ‘Satisfactory’ rating when it comes to community reinvestment, while on the other hand we have millions of Americans who have no access to safe mortgages or low-cost checking accounts,” Giannoulias wrote. “CRA ratings may look good on paper, but in reality they are falling short.”

Giannoulias will submit testimony during the third of four national public hearings jointly sponsored by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.

“While there is much to do on the legislative side of this important law, including passage of a fair, safe, and more relevant version as proposed in the Community Reinvestment Modernization Act of 2009, (H.R. 1479), my focus today is the importance of establishing transparency within CRA, specifically with regard to qualifying activities, ratings, and reporting,” Giannoulias added.

He recommended regulators improve transparency and accountability in three ways:

Give banks a numeric grade on a scale of 1 to 100 so that consumers can tell if a bank is fully committed to community reinvestment or barely passing, just like a standard report card. Currently, banks are ranked on a 0 to 24 scale which is less intuitive for consumers.

Modernize the weighting system for various financial products, so that it is clear how banks are being measured. Products and services that complement a bank’s lending activities, such as low-cost checking accounts and payday alternative loans, should count toward CRA, but should be weighted according to their impact.
Make it easier for the public to acquire full-length CRA reports from bank and thrift regulatory agencies on a single, searchable online database on the Federal Financial Institutions Examination Council website. This level of transparency is not available today.

The State Treasurer’s Office only wants to do business with financial institutions that show commitment to their communities, so it took matters into its own hands last year, Giannoulias said.

Since June 2009, the Treasurer’s Office has required all banks that received or renewed state deposits to pledge to provide non-predatory foreclosure prevention products, conventional banking services to the unbanked and small business loan products.

“We’re doing what we can at the state level to hold financial institutions accountable to their neighborhoods,” Giannoulias wrote. “But federal reforms are needed to clearly differentiate between the financial institutions that are going the extra mile and those that achieved ‘Satisfactory’ by the skin of their teeth.”

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