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Cascade: No. 59, Fall 2005

New CRA Test for Intermediate Small Banks

Recent amendments to the CRA regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency provide for a new category of “intermediate small banks” with assets between $250 million and $1 billion. Intermediate small banks are exempt from collecting and reporting CRA small-business and small-farm data.

Intermediate small banks will be evaluated under a streamlined lending test and a flexible community development test. The community development test will be applied flexibly to permit the banks to apply their resources strategically to the types of community development activities (loans, investments, and services) that are most responsive to community needs, even when those activities are not necessarily innovative, complex, or new, the amendments say. There are approximately 60 intermediate small banks in the Third Federal Reserve District.

Holdingcompany affiliation is no longer a factor in determining which CRA evaluation standards apply to a bank.

Two amendments pertain to all banks regulated by the three agencies. One revises the regulation’s definition of community development and expands the number of eligible geographies to include distressed or underserved rural areas and designated disaster areas.

More specifically, the amendment revises the “revitalize or stabilize” category of the definition of community development to allow activities that revitalize or stabilize areas designated by the agencies as “distressed or underserved nonmetropolitan middle-income geographies” to qualify as community development activities. A list of distressed or underserved rural areas will be listed on the Federal Financial Institutions Examination Council’s website (

Disaster areas may be designated by federal or state governments. Examiners will give significant weight to the extent to which a bank’s revitalization activities in disaster areas benefit low- or moderate-income individuals, the amendments said.

The second amendment pertaining to all banks regulated by the three agencies says that evidence of discrimination or credit practices that violate an applicable law, rule, or regulation will adversely affect an agency’s evaluation of a bank’s CRA performance, regardless of whether the practices involve loans in the bank’s assessment area. A bank’s CRA evaluation is also adversely affected by evidence of discrimination or other illegal credit practices by any 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, according to the amendments.

The agencies will issue for comment a question-and-answer document addressing the amendments and related issues. The amendments were approved in July and became effective September 1, 2005.

To see the Federal Register notice about the amendments, go to Indicate 2005 (Volume 70), page 44256, 12 CFR Part 25.