Japan's US Banks In Loan-Law Tiff

Critics want more loans in low-income areas

JAPANESE banks operating in the United States are under growing pressure to comply with an American law that requires financial institutions to make substantial loans in low-income communities. Last month the Federal Reserve convened an unusual public meeting in Los Angeles to hear charges that Mitsui Manufacturers Bank (MMB), a subsidiary of Japan's giant Mitsui Taiyo Kobe Bank, has a poor record of compliance with the 1977 Community Reinvestment Act (CRA).

More than a dozen community organizations from California claimed Mitsui has failed to make sufficient loans for mortgages and small businesses in minority and low-income areas.

MMB denies the charges, and says it will be vindicated by an impending CRA examination of the bank by the Federal Deposit Insurance Corporation. "We think we achieved a very strong CRA record in 1990," says MMB president Jerry Johnston, "and we hope the examination will put a lot of the debate to rest."

The MMB case, combined with tougher enforcement of the law by federal regulatory authorities, has prompted other Japanese banks to boost CRA compliance efforts. Most of the banks have established CRA compliance committees to draft and implement lending programs for low-income communities.

Summit in New York

Several weeks ago, 19 Japanese banks in New York participated in a luncheon hosted by Fuji Bank to discuss contributions and loans to New York-area organizations that promote affordable housing.

But community activists say Japanese banks in California, which control 25 percent of all the bank assets in the state, still have a poor record of CRA compliance. "We think there are substantial deficiencies at other Japanese banks besides Mitsui," says Richard Devine of the Center for Community Change in San Francisco.

One exception is Union Bank, a subsidiary of Bank of Tokyo, which community groups say maintains a model CRA program. "We were going to block Bank of Tokyo's takeover of Union in 1988 because of poor CRA compliance," says Robert Gnaizda of the San Francisco-based Greenlining Coalition. "We forced them to reach a written agreement with long-term specific commitments."

Mr. Gnaizda says Union Bank decided to "be a leader rather than just do the minimum necessary," and he praises the bank for adding minorities to its board, for boosting loans for affordable housing and minority businesses, for issuing service contracts to women and minority-owned businesses, and for reducing service fees for low income customers.

May hinder expansion

Failure to comply with the law could hinder the expansion many Japanese - and US - banks hope to undertake if Congress adopts proposed bank reforms. CRA empowers bank regulators to deny a bank's application to open new branches or acquire existing institutions if its lending record in low-income areas is deficient.

Community organizations may file protests of pending applications, and regulators in the past have rejected expansion plans due to poor CRA records.

"The Mitsui case is going to have an extremely negative impact on the ability of Japanese banks to expand," says Gnaizda, whose organization helped lead the protests against MMB.

Brian Vanderkelen, director of Mitsubishi Bank's CRA compliance committee, acknowledges this concern. "Thus far, Japanese banks have not filed enough applications to draw the attention of community groups," he says. "But the whole issue could become bigger when banking laws are rewritten, since applications for expansion will increase."

The Mitsui controversy arose last year when the bank, as part of its merger with Taiyo Kobe Bank, applied to convert the New York-based Taiyo Kobe Trust into a commercial bank. After California community groups protested that application, the Fed last December ordered the March hearing.

MMB's Johnston dismisses the Fed hearing as "a little bit of a circus" prompted by political considerations. "The protest groups are very effective in getting responses from the House and Senate," he says.

The community organizations acknowledge Mitsui made substantial progress in 1990. "But there was compelling testimony that Mitsui rejected applications for loans from small businesses that were readily funded by other institutions," Mr. Devine says.