On July 19, 2005, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (the agencies) jointly announced approval of identical final amendments to their respective Community Reinvestment Act (CRA) regulations, which became effective on September 1, 2005. The Office of Thrift Supervision has not adopted these amendments. This article highlights the key points of the CRA amendments adopted by the agencies.
Intermediate Small Banks: Banks with Assets Between $250 Million and $1 Billion
The amendments are intended to reduce regulatory burden on small banks with an asset size between $250 million and $1 billion and to make their CRA evaluations more flexible while still encouraging them to invest in their communities. To accomplish these goals, the amendments contain two important changes for these “intermediate small banks.”
Exemption from data collection and reporting. Intermediate small banks will no longer be required to collect and report CRA loan data on small farm, small business, or community development loans or data on the location of mortgage loans outside of metropolitan areas. Despite the data collection exemption, the agencies will continue to evaluate intermediate small banks on their lending performance (including data reported under HMDA, if applicable) and to summarize the performance in public evaluations.
CRA evaluations. Intermediate small banks will be eligible for a two-part CRA evaluation test that includes a streamlined lending test and a community development test. A bank will need a satisfactory rating on each test to receive a CRA rating of satisfactory.
The lending test evaluates intermediate small banks using the same criteria currently employed to evaluate small banks. The criteria evaluate the distribution of a bank’s loans among geographic areas and borrowers of varying incomes, similar to the large bank criteria, but they do this on a more streamlined basis.
The community development test evaluates an intermediate small bank’s community development performance as a whole, instead of on the three separate tests format based on loan, investment, and service criteria. This format will continue to be used for large banks. The new test emphasizes the substance of a bank’s performance while being flexible about its form. A bank’s record of providing banking services to low-income people, including opening branches in low-income areas, will be considered under the community development test.
Community Development in Rural Areas
To provide banks with additional incentives to invest in rural development, the new CRA amendments increase the number of rural areas in which bank activities, by banks of any size, qualify for community development consideration. Eligible areas will include not only low- and moderate-income census tracts, as provided under the existing regulation, but also distressed or underserved middle-income rural census tracts identified by objective criteria. Designated disaster areas, whether urban or rural, are also considered eligible areas. The list of distressed or underserved nonmetropolitan middle-income geographies is located on the Federal Financial Institutions Examination Council’s (FFIEC) CRA website at www.ffiec.gov/cra. Staff at the Board of Governors of the Federal Reserve System will update this list annually.
Illegal Credit Practices
The amendments also clarify when evidence of discrimination or other illegal lending practices by a bank or its affiliate might reduce its CRA rating. Under the amendments, a bank’s rating is adversely affected by such practices, regardless of whether they involve loans in the bank’s assessment area(s) or in any other location or geography. In addition, a bank’s CRA rating is also adversely affected by evidence of such practices by any bank affiliate in connection with loans inside the bank’s assessment area(s), if any loans of that affiliate have been considered in the bank’s CRA evaluation.
The Federal Reserve’s press release and the CRA amendments are available at www.federalreserve.gov/boarddocs/press/bcreg/2005/20050719/default.htm. Examination procedures for intermediate small banks are available on the FFIEC’s website.
In addition, on November 10, 2005 a proposal to revise existing CRA guidance on an interagency basis was released. The revisions, in a question and answer format, address topics related to the revisions the agencies made to their existing regulations that implement the CRA.
When final, these questions and answers will be added to the Interagency Questions and Answers, an existing document that contains staff guidance for examiners and agency personnel, financial institutions and the public.
The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.