The Community Reinvestment Act (CRA) was passed by Congress in 1977 to ensure banks were lending money in all communities within their geographic area. The FDIC and the other bank regulatory agencies are required to do periodic assessments of banks' compliance with the law and issue ratings of "needs improvement," "satisfactory," or "outstanding." These examination findings – unlike those of the safety and soundness examinations – are made public.

On February 6, 2004, the FDIC, along with the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Office of Thrift Supervision, published a joint interagency notice of proposed rulemaking (NPR) regarding the CRA. This NPR fulfilled the commitment the agencies made in 1995, when the current CRA regulations were adopted, to review the regulations to determine whether they were producing objective, performance-based CRA evaluations that did not impose undue burden on institutions.

To reduce regulatory burden, the proposal would change the definition of a "small bank" by raising the small bank asset-size threshold from $250 million to $500 million without regard to any holding company size. This change would increase the number of institutions eligible for the streamlined small bank exam that focuses on lending, while only slightly reducing the portion of the nation's bank and thrift assets subject to the large bank CRA examination of lending, investments and services. Raising the threshold to $500 million, without reference to holding company assets, would halve the number of institutions subject to the large bank requirements (to roughly 12% of all insured depository institutions), but the percentage of industry assets subject to the large bank retail tests would decline only slightly, from a little more than 90% to a little less than 90%, not unlike the distribution in 1995 when the agencies adopted the current small institution definition.

Under the proposal, evidence of discriminatory or other illegal credit practices by a financial institution would have a negative effect on a CRA evaluation, whether occurring inside or outside the financial institution's CRA assessment area(s). The agencies have followed this concept in the past, but this provision clarifies that illegal credit practices outside assessment areas can also negatively affect a rating. In addition, and for the first time, evidence of a pattern or practice of making home mortgage or secured loans based on the foreclosure value of a property without regard to the ability of a borrower to repay (so called asset-based lending), would have a negative affect on a rating. Finally, the agencies would disclose large banks' small business and small farm data by dollar and number by census tract. At present, it is disclosed in an aggregate manner by groups of income levels.

The comment period for public input on this proposed regulation ended on April 6 and we have received approximately 1,100 comments, which we are reviewing.