Banking changes now being proposed in Washington could hamper community investment efforts in Maine, but area bankers say it would have no negative effect on local investment practices.

A proposal to change the definition of a big bank from one with assets of at least $250 million to one with assets of at least $1 billion would also change the lending requirements of the newly designated “smaller” banks, a move that alarms some organizations that work on behalf of low- and moderate-income people.

“This could potentially devastate investments in community groups by medium-sized banks in rural areas such as Maine,” wrote Ron Phillips, president of Coastal Enterprises Inc., in a letter protesting the change to federal regulators. CEI is a community development group that helps disadvantaged people find housing and jobs.

“I’d be surprised if banks are as aggressive as they are now (in financing projects),” said Jim Hatch, an affordable housing consultant who is working on projects in Portland and South Portland.

But Chris Pinkham, president of the Maine Association of Community Banks, said a regulatory change won’t lessen his members’ commitment to their communities. The MACB backs the change because of its lighter regulatory burden.

“The language of the new regulations gives us flexibility,” said Pinkham. “It won’t lessen the dollar or human commitment” that banks make now to providing fair access to credit.

At issue is the Community Reinvestment Act, which requires all banks to lend money to moderate- and low-income people. Compliance with CRA is monitored every year through audits, during which a bank’s lending policies and loans are reviewed.

A proposal that is being floated by the Federal Deposit Insurance Corp. would exempt newly defined smaller banks from the same CRA standards as their bigger brethren. In its place would be a broader definition of community investment, and less paperwork.

In Maine, 20 banks currently report assets of between $250 million and $1 billion and follow the stricter CRA regulations; they would be eligible for streamlined compliance. The larger banks – Fleet, Key, Banknorth, Bangor Savings and Camden National – would not be affected.

In an era where three national banks have assets that exceed $1 trillion, it’s a move that’s long overdue, say supporters.

“The (CRA) reporting requirements are pretty cumbersome,” said Peter Judkins, senior vice president of Franklin Savings Bank, which reported assets of $290 million in 2003.

“There’s a big difference between Bank of America and Franklin Savings Bank and even Peoples Heritage and Franklin Savings Bank,” he said. “To be measured the same as those players when you’re our size is a little bit ridiculous.”

One of the changes allows smaller banks to make loans to organizations that are pursuing community development projects. Under existing regulations, only loans made to individuals count toward compliance with CRA.

At Franklin Savings Bank, that means the $100,000 investment the bank made in Franklin Memorial Hospital and the $50,000 it invested in a library project could be counted toward CRA compliance.

“We would do it anyway,” said Judkins, adding the new CRA regulation wouldn’t change the bank’s lending policies or what it gives back to community.

Hatch said it’s hard to tell what banks will do if the proposal is approved. Right now, one way banks earn CRA credits is by financing the construction costs of affordable housing projects, and by bidding on some long-term financing. Hatch typically puts together a request to three or four banks and asks them to submit a proposal detailing what they’d charge for construction loans, processing fees and to administer federal home loan programs.

“There can be a huge spread between one bank and another,” said Hatch. “Banks have been very aggressive and competitive about getting affordable housing deals because they want them in their CRA portfolios.”

CEI’s Phillips said he expects Maine’s banks will “continue to do the right thing,” but the potential is there for banks to step back from targeted lending practices.

“The legislation is probably much more applicable to other parts of the country. That’s why it’s important to keep the investment test for banks at the 250 million (dollar) level and not raise it to 1 billion (dollars).”

The proposal to change CRA standards is open for public comment until Oct. 20. Once the comment period is over, the FDIC has 30 to 180 days to make a final decision. Because it’s a regulatory change, there is no congressional review.