Federal regulators examine how the largest banks deliver financial services to communities throughout the Chicago region incompletely and inconsistently says a new report by Woodstock Institute research staff. Looking at recent bank examinations, Woodstock Institute researchers tried to determine how federal examiners evaluated the distribution of bank branches and the quality and relative affordability of basic financial services, such as checking accounts.

Instead, they found glaring omissions, inconsistent evaluation methods, and in some cases, little more than cursory praise of the bank’s modest effort.Geoff Smith, research director, described the examinations as “plagued by insufficient quantitative data, superficial and inconsistent qualitative data, and a lack of performance driven measurements.”

The Community Reinvestment Act mandates that federal bank regulators evaluate the performance of financial institutions in lower-income communities using publicly available data on mortgage lending, small business lending, and bank branching. Researchers, community groups, and practitioners have criticized the implementation of the examination process for its vagaries and proposed several reforms designed to hold the largest banks accountable. At the same time, studies continue to provide incontrovertible evidence that lower-income communities have not shared in the recent bank building boom, despite the relatively high aggregate income available for deposit.

Woodstock Institute and others have called on federal regulators to collect meaningful data on how banks are reaching out to lower-income neighborhoods with appropriate and affordable financial services. Much useful data are currently available to bank examiners, but the fact that it has been only sporadically reported substantially limits its usefulness. Such data must be collected in a standardized manner and reported for every institution examined and the absence of such data from the majority of CRA examinations reflects an institutional unwillingness on the part of the bank regulators to take the service test seriously despite the Congressional mandate.

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