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Cascade: No. 57, Spring 2005

Message from the Community Affairs Officer

Over the past six months, the community development world has been in a state of agitation as two supervisory agencies, the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC), made or considered changes to the regulations governing Community Reinvestment Act (CRA) compliance for banks and thrifts, and two agencies — the Federal Reserve and the Office of the Comptroller of the Currency (OCC) — remained silent. The review of CRA, which started in July 2001, has undergone some interesting twists and turns, particularly because the four agencies, which normally stand together, were divided over how (or if) to change the regulations.

But now, three of the four have agreed to a common proposal. While the OTS adopted its changes last summer, the FDIC, the OCC, and the Federal Reserve Board agreed to new proposed regulations. They will have been posted in the Federal Register and the public has until May 10 to comment on the proposed changes.

Here is the essence of the issue and the proposed changes. The primary problem is that banks and thrifts in the $250 million to $1 billion category feel that they cannot compete on CRA with the large banks and, therefore, regulating them in the same manner is unfair and overly burdensome. Community developers feel that these midsize banks should not be held to the simple lending test of small banks because the banks’ and thrifts’ investment dollars are needed in their communities. As a compromise, the new proposal is recommending the following measures.

The proposed regulation:

  1. Defines a small bank as one with assets under $1 billion, regardless of any holding company size or affiliation. This number will be adjusted for inflation based on the consumer price index.
  2. Creates a new community development test for banks (referred to as intermediate small banks) between the size of $250 million and $1 billion. They will continue to be tested on their lending record as well. The community development test will include number and amount of loans, qualified investments, the extent to which the bank provides community development services, and its responsiveness to its community.
  3. Proposes that these intermediate small banks would no longer be required to report originations and purchases of small business, small farm, and community development loans.
  4. Changes two parts of the definition of community development. Number 1 is proposed to read: “Affordable housing (including multifamily rental housing) for low- and moderate-income individuals, individuals in underserved rural areas, or individuals located in designated disaster areas.” Number 4 is proposed to read: “Activities that revitalize or stabilize low- and moderate-income geographies, underserved rural areas, or designated disaster areas.
  5. If you care about this issue, now is the time to make your voice heard. The comment period is 60 days from the date the proposed regulations appear in the Federal Register. While all proposed changes are subject to comment, the regulators are particularly seeking advice on how to define “underserved” and “rural.”

The proposal to revise rules implementing CRA may be found at www.access.gpo.gov/su_docs/fedreg/frcont05.html. Go to the Federal Register notice for March 11, 2005, scroll down to the Federal Reserve System, proposed rules, and select the pdf document. The deadline for comments is May 10, 2005.