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FDIC Federal Register Citations

[Federal Register: August 2, 2005 (Volume 70, Number 147)]
[Rules and Regulations]
[Page 44256-44270]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02au05-7]

Technical Correction - 12/29/06
=======================================================================-

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 25

[Docket No. 05-11]
RIN 1557-AB98

FEDERAL RESERVE SYSTEM

12 CFR Part 228

[Regulation BB; Docket No. R-1225]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 345

RIN 3064-AC89


Community Reinvestment Act Regulations

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve System (Board); and Federal
Deposit Insurance Corporation (FDIC).

ACTION: Joint final rule.

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SUMMARY: The OCC, Board, and FDIC (collectively, ``federal banking
agencies'' or ``the agencies'') are issuing this joint final rule that
revises certain provisions of our rules implementing the Community
Reinvestment Act (CRA). The agencies are taking this action after
carefully considering public comments received in response to the joint
notice of proposed rulemaking published on March 11, 2005 (the ``March
proposal''). The joint final rule addresses regulatory burden imposed
on small banks with an asset size between $250 million and $1 billion
by exempting them from CRA loan data collection and reporting
obligations. It also exempts such banks from the large bank lending,
investment, and service tests, and makes them eligible for evaluation
under the small bank lending test and a flexible new community
development test. Holding company affiliation is no longer a factor in
determining which CRA evaluation standards apply to a bank. In
addition, the joint final rule revises the term ``community
development'' to include activities to revitalize and stabilize
distressed or underserved rural areas

[[Page 44257]]

and designated disaster areas. Finally, it adopts without change the
amendments to the regulations to address the impact on a bank's CRA
rating of evidence of discrimination or other credit practices that
violate an applicable law, rule, or regulation.

EFFECTIVE DATE: This joint final rule is effective September 1, 2005.

FOR FURTHER INFORMATION CONTACT: OCC: Michael Bylsma, Director, or
Margaret Hesse, Special Counsel, Community and Consumer Law Division,
(202) 874-5750; Karen Tucker, National Bank Examiner, Compliance
Division, (202) 874-4428; or Patrick T. Tierney, Senior Attorney,
Legislative and Regulatory Activities (202) 874-5090, Office of the
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.
Board: Anjanette M. Kichline, Oversight Senior Review Examiner,
(202) 785-6054; Catherine M.J. Gates, Oversight Team Leader, (202) 452-
3946; Kathleen C. Ryan, Counsel, (202) 452-3667; or Dan S. Sokolov,
Senior Attorney, (202) 452-2412, Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, 20th Street
and Constitution Avenue, NW., Washington, DC 20551.
FDIC: Richard M. Schwartz, Counsel, Legal Division, (202) 898-7424;
Susan van den Toorn, Counsel, Legal Division, (202) 898-8707; or Robert
W. Mooney, Chief, CRA and Fair Lending Policy Section, Division of
Supervision and Consumer Protection, (202) 898-3911; Federal Deposit
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Background

The CRA requires the federal banking and thrift agencies to assess
the record of each insured depository institution of meeting the credit
needs of its entire community, including low- and moderate-income
neighborhoods, consistent with the safe and sound operation of the
institution, and to take that record into account when the agency
evaluates an application by the institution for a deposit facility.\1\
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\1\ 12 U.S.C. 2903.
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Rulemaking History

In 1995, when the OCC, the Board, the FDIC, and the Office of
Thrift Supervision (OTS) (collectively, ``federal banking and thrift
agencies'' or ``the four agencies'') adopted major amendments to
regulations implementing the Community Reinvestment Act, they committed
to reviewing the amended regulations in 2002 for their effectiveness in
placing performance over process, promoting consistency in evaluations,
and eliminating unnecessary burden. (60 FR 22156, 22177 (May 4, 1995)).
The federal banking and thrift agencies indicated that they would
determine whether and, if so, how the regulations should be amended to
better evaluate financial institutions' performance under the CRA,
consistent with the Act's authority, mandate, and intent.
The four agencies' review was initiated in July 2001 with
publication in the Federal Register of an advance notice of proposed
rulemaking requesting comment on whether the regulations were effective
in meeting the stated goals of the 1995 rulemaking and whether any
changes should be made to the rules (66 FR 37602 (July 19, 2001)). The
approximately 400 comments reflected a consensus that certain
fundamental elements of the regulations are sound, but demonstrated a
disagreement over the need and reasons for change.
In February 2004, the four agencies published a notice of proposed
rulemaking (69 FR 5729 (Feb. 6, 2004)). Among other things, the
proposal would have increased the small bank asset size threshold to
$500 million, without regard to holding company affiliation. Commenters
were deeply split on this proposal, with financial institutions and
their trade associations urging additional burden relief for more
institutions and community organizations opposed to allowing any
additional financial institutions to be evaluated as ``small''
institutions. On July 16, 2004, the OCC and the Board announced that
they would not proceed with their respective February 2004 proposals.
The OCC did not formally withdraw the proposal, but did not adopt it.
The Board formally withdrew its proposal.
On August 18, 2004, the OTS published a final rule that expanded
the category of ``small savings associations'' under the OTS'' CRA
regulations to those with under $1 billion in assets, regardless of
holding company affiliation (69 FR 51155 (Aug. 18, 2004)). Following
its publication of a notice of proposed rulemaking in November 2004,
the OTS also adopted a final rule that allows a thrift that is
evaluated as a large retail institution to determine the weight that
will be assigned to lending, investments, and services in its CRA
evaluation. (70 FR 10023 (Mar. 2, 2005)).
On August 20, 2004, the FDIC issued a proposal on the CRA
evaluation of banks defined as ``small'' (69 FR 51611 (Aug. 20, 2004)).
The FDIC proposal would have expanded the category of ``small banks''
to those under $1 billion, regardless of any holding-company size or
affiliation. For small banks with assets between $250 million and $1
billion, the FDIC proposal would have added to the five performance
criteria of the current streamlined small bank test a new sixth
criterion taking into account a bank's record of community development
lending, investments, or services, but also asked for comment on
whether those community development activities should be evaluated in a
separate test. The FDIC received over 11,000 comments in response to
its proposal. Banks and their trade associations supported a change in
the small bank dollar threshold, primarily as a way to reduce
administrative burden, but expressed mixed views on whether community
development activities should be evaluated as a sixth criterion in the
small bank evaluation or as a separate test. Community organizations
almost universally opposed any increase in the small bank threshold.
However, these commenters generally supported the proposal to require
such banks to be evaluated under a separately rated community
development test in addition to the small bank lending test, if the
small bank threshold were to be increased.\2\
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\2\ For a more detailed history of CRA rulemaking activities by
the banking agencies since 2001, please refer to the supplementary
information published in the Federal Register with the joint notice
of proposed rulemaking (70 FR 12148, 12149 (Mar. 11, 2005)).
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The Proposed Rule

The OCC, the Board, and the FDIC jointly issued the proposed
amendments to their CRA regulations, which were published in the
Federal Register on March 11, 2005. The proposal was developed after
thorough consideration of all the comments that the agencies had
received in response to their previous proposals. The March proposal
responded to community banks concerned about regulatory burden by
extending eligibility for streamlined lending evaluations and the
exemption from data reporting to banks under $1 billion, without regard
to holding company assets. The new proposal also provided an adjustment
of this threshold for inflation, based on changes to the Consumer Price
Index.
The proposal addressed the concerns of community organizations that
had urged the federal banking and thrift agencies to continue to
evaluate community development participation by providing that the
community

[[Page 44258]]

development records of banks between $250 million and $1 billion,
termed ``intermediate small banks,'' would be separately evaluated and
rated, but provided a new, more streamlined basis than the current rule
for doing so. Under the proposal, an intermediate small bank would not
be eligible for an overall rating of ``satisfactory'' unless it
received ratings of ``satisfactory'' on both the lending and community
development tests.
The proposal also responded to suggestions from both community
banks and community organizations that the current definition of
``community development'' was too narrow by proposing to expand the
definition of community development activities to include certain
activities in underserved rural areas and designated disaster areas.
Finally, the proposal provided that evidence of discrimination, or
evidence of credit practices that violate an applicable law, rule, or
regulation, could adversely affect an agency's evaluation of a bank's
CRA performance and included an illustrative list of such practices.
Together, the agencies received over 10,000 public comments,
including identical comments sent to each agency, from consumer and
community organizations, banks and bank trade associations, academics,
Federal and State Government representatives, and individuals. In
general, commenters recognized that the proposal had the potential to
strike an appropriate balance between the need to provide meaningful
regulatory relief to small banks and the need to preserve and encourage
meaningful community development activities by those banks.

The Final Rule

Increase in Size Threshold for Small Banks From $250 Million to $1
Billion

Comments on Proposed Rule

The agencies proposed to reduce undue regulatory burden by
extending eligibility for streamlined lending evaluations and the
exemption from data reporting to banks under $1 billion without regard
to holding company affiliation. In addition, the agencies proposed to
define small banks with assets between $250 million and $1 billion as
``intermediate small banks.'' The proposal also would annually adjust
the asset size for small and intermediate small banks based on changes
to the Consumer Price Index.
Most community organizations opposed the proposal to raise the
small bank threshold to $1 billion while most banks supported the
increase. Community organizations expressed a concern that an increase
in the threshold would cause banks to reduce their investments and
services in low- and moderate-income areas. Although they preferred
that the agencies not increase the threshold, a number of community
organization commenters noted that the proposed evaluation of
intermediate small banks under a community development test and the
streamlined lending test was a notable improvement over the previous
proposals to raise the small bank threshold.
Community organizations also expressed concern that an increase in
the small bank threshold would reduce public data on small business,
small farm, and community development loans. Community organizations
objected to this result on the basis that communities would lack the
means to evaluate the small business and small farm lending of
intermediate small banks. A few community organizations offered
specific examples of how they or others have used information about
such lending, including, for example, a series of studies examining
impediments to capital formation by business owners in low- and
moderate-income areas. Some community organizations asserted that
intermediate small banks make more small business, small farm and
community development loans, as a percentage of bank assets, than
larger banks. Thus, they believe that the loss of the intermediate
small bank lending data will significantly affect the relevance of the
remaining data, particularly in markets that include numbers of
intermediate small banks. Some commenters also noted that the proposal
would affect the Home Mortgage Disclosure Act (HMDA) requirements to
report certain loans outside of a Metropolitan Statistical Area (MSA)
for intermediate small banks.
The vast majority of bank and bank trade association commenters
noted that increasing the small bank threshold would provide
substantial and needed regulatory burden reduction because intermediate
small banks would be relieved of the obligation to collect and report
information about small business, small farm, and community development
loans. They also noted that, given the inclusion of the community
development test for intermediate small banks, elimination of the data
collection and reporting requirements was the principal regulatory
relief component of the proposed amendments. However, a few banks
stated that this relief would not be realized fully if banks continue
to collect information about community development loans, investments,
and services, and provide it to examiners for use in evaluating the
bank's performance under the proposed community development test.
A number of banks and their trade associations commented that the
small bank size threshold should be raised to $1 billion without
creating a tier of intermediate small banks that would be subject to
the proposed community development test. A few bank commenters
suggested defining an intermediate small bank subject to the new
community development test as a bank with assets between $500 million
and $1 billion, and to permit institutions with less than $500 million
in assets to be evaluated solely under the streamlined small bank
lending test.
Some community organization commenters criticized the proposal to
adjust the asset threshold annually for small and intermediate small
banks based on changes to the Consumer Price Index (CPI) because it
could increase the number of banks that are exempt from the large bank
evaluation standards and further decrease the availability of small
business, small farm, and community development loan data. Most banks
that commented on the issue supported tying the small and intermediate
small bank thresholds to changes in the CPI.

Provisions of Final Rule

The joint final rule retains the proposed asset size threshold for
small banks of less than $1 billion and the annual adjustment to the
threshold based on changes to the Consumer Price Index. The text of the
``small bank'' definition describing the ``intermediate small bank''
category has been revised for clarity. The federal banking agencies
believe that raising the asset size threshold provides important
regulatory relief for community banks. As discussed below, the final
rule also will preserve and encourage meaningful CRA activities by
intermediate small banks by means of a new community development test.
As a result of the rule change, data on the distribution of small
business loans and small farm loans extended by intermediate small
banks will no longer be publicly available. In revising the rule, the
agencies have considered the adequacy of substitute sources of
information. Call Report data, although lacking the loan-location and
business-size information in the CRA data, provide the public with
annual outstanding amounts of small business and small farm loans.
Moreover, an intermediate small bank's CRA performance evaluation
includes, as appropriate, a description of its small

[[Page 44259]]

business and small farm lending performance, as well as a description
of any community development loans the bank has made. These sources
will give the public information on intermediate small banks' records
of extending small business, small farm, and community development
loans. On balance, the agencies believe the costs of the mandatory data
collection and reporting by intermediate small banks, including the
fixed costs that weigh more heavily on smaller banks, outweigh the
benefits.
Further, under the CRA and HMDA regulations, large banks generally
must collect and report information about the location of property
securing home loans located outside of MSAs and metropolitan divisions
in which the institution has a home or branch office, or outside any
MSA (12 CFR 203.4(e)). But for small banks, collecting and reporting
this location information is optional. Thus, under this joint final
rule, intermediate small banks will no longer be required to collect
and report information on the location of mortgage loans outside MSAs
and metropolitan divisions in which the banks have home or branch
offices.
Summary information about where such mortgage loans were made, and
detailed information about the applicants or borrowers, will
nevertheless continue to be available. Mortgage loan location
information is summarized in the CRA performance evaluation as part of
the evaluation of the geographic distribution of a bank's loans, as
appropriate. Moreover, some newly designated intermediate small banks
may opt to report loan location information as some small banks have
done in the past. Furthermore, intermediate small banks covered by HMDA
will continue to report borrower or applicant race, ethnicity, gender,
and income even when property location need not be reported. The
agencies believe that the additional value of requiring intermediate
small banks to report loan location information on all of their
mortgage loans does not justify the cost of reporting such
information.\3\ Although an intermediate small bank will no longer be
required to collect and report data on small business or small farm
loans or on the location of certain nonmetropolitan mortgage loans, the
agencies will continue to evaluate such lending under the streamlined
lending test if it constitutes a major product line of the bank.
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\3\ Even were the proposal not adopted, intermediate small banks
would continue to be exempt from reporting loan location information
on mortgage loans made in counties with populations of less than
30,000.
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Community Development Test for Intermediate Small Banks

Comments on Proposed Rule

The March proposal would have added a new community development
test that would be separately rated in CRA examinations for
intermediate small banks. The new community development test would
evaluate an intermediate small bank's community development loans,
qualified investments, and community development services, resulting in
a single rating for community development performance. Overall CRA
ratings for intermediate small banks would be based on ratings for this
community development test and the streamlined small bank lending test.
Most community organization commenters generally favored the
retention of the large bank lending, investment, and service tests for
evaluation of all banks with assets of $250 million or more. On the
other hand, many of these commenters noted that the proposed
intermediate small bank examination standards--the streamlined small
bank lending test plus the proposed community development test--were
significantly preferable to permitting additional banks to be evaluated
under only the streamlined small bank lending test. In this regard,
community organizations strongly supported the provision in the
proposed rule to require an intermediate small bank to receive a
``satisfactory'' rating on both the community development and the small
bank lending tests in order to receive an overall ``satisfactory''
rating.
Many bank commenters opposed the creation of separate new standards
for intermediate small banks. For example, many community bankers
commented that all banks under $1 billion should be examined solely
under the streamlined lending test. Some bank and bank trade
associations urged the agencies to adopt final rules that assign
greater weight to retail lending than to community development in the
overall evaluation of an intermediate small bank's CRA performance. A
few commenters stated that, under the proposal, community development
would receive greater weight in an intermediate small bank's overall
rating than it does under the large bank lending, investment, and
service tests that currently apply to such banks. They urged the
agencies to clarify that intermediate small banks, at their option,
could continue to choose to be evaluated under the large bank lending,
investment, and service tests.
Regarding the activities evaluated under the proposed community
development test, most community organizations stated that an
institution should be required to engage in all three activities--
community development loans, qualified investments, and community
development services--in order to earn a ``satisfactory'' rating on the
community development test. Although community organizations believed
that an institution's rating on the community development test should
take account of bank capacity and community opportunities for community
development, they asserted that the primary consideration should be the
institution's responsiveness to community needs. Moreover, many
community organizations requested that the community development test
also evaluate an intermediate small bank's provision of community
development services through branches located in low- and moderate-
income areas.
Many banks and bank trade associations commented favorably on the
flexibility that the community development test offered. Some large
banks requested that the proposed community development test be made
available to banks with assets of $1 billion or more as a substitute
for the existing investment and service tests.

Provisions of Final Rule

The final rule adopts the proposed community development test for
intermediate small banks without change. The number and amount of
community development loans, the number and amount of qualified
investments, and the provision of community development services, by an
intermediate small bank, and the bank's responsiveness through such
activities to community development lending, investment, and services
needs, will be evaluated in the context of the bank's capacities,
business strategy, the needs of the relevant community, and the number
and types of opportunities for community development activities. The
agencies believe that, given these performance context factors, the
community development test will provide a better framework for
assessing community development performance by intermediate small banks
than the separate lending, investment, and service tests. As noted in
the preamble to the proposed rule, the community development test will
be applied flexibly to permit a bank to apply its resources
strategically to the types of community development activities (loans,
investments, and services) that are most responsive to helping to meet
community needs, even when those activities are not necessarily
innovative, complex, or new. (``Innovativeness'' and

[[Page 44260]]

``complexity,'' factors examiners consider when evaluating a large bank
under the lending, investment, and service tests, are not factors in
the intermediate small banks' community development test.) The agencies
will incorporate these considerations as appropriate into examination
guidance and procedures to ensure flexible application of the
standards.
In providing this flexibility for intermediate small banks, the
federal banking agencies do not intend to suggest that a bank may
simply ignore one or more categories of community development or
arbitrarily decrease the level of such activities. Nor does the joint
final rule prescribe any required threshold level or allocation of
community development loans, qualified investments, and community
development services for these banks. Instead, the OCC, the FDIC, and
the Board expect that a bank will appropriately assess the needs in its
community, engage in different types of community development
activities based on those needs and the bank's capacities, and that it
will take reasonable steps to apply its community development resources
strategically to meet those needs.\4\ As the agencies indicated on
adoption of the 1995 regulation, the agencies will expect a bank to
make an assessment using information normally used to develop a
business plan or identify potential markets and customers.\5\ Examiners
will consider the bank's assessment of community needs along with
information from community, government, civic, and other sources to
gain a working knowledge of community needs.\6\ The flexibility
inherent in the community development test will allow intermediate
small banks to focus on meeting the substance of community needs
through these means, without undue regulatory consequences from the
form of the response.
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\4\ As discussed in the supplementary information published with
the proposed rule, the agencies anticipate that examiners will
exercise their discretion, using performance context, to assign
appropriate weight in a bank's current period rating to prior-period
outstanding investments that reflect a substantial financial
commitment or outlay by the bank designed to have a multi-year
impact, in addition to investments made during the current
examination cycle.
\5\ 60 FR 22156, 22163 (May 4, 1995).
\6\ Id.
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Under the joint final rule, retail banking services provided by
intermediate small banks will no longer be evaluated in a separate
service test. Instead, the extent to which such banks provide community
development services to low- and moderate-income people will be taken
into account in the community development test. Thus, the federal
banking agencies will consider not only the types of services provided
to benefit low- and moderate-income people, such as low-cost bank
checking accounts and low-cost remittance services, but also the
provision and availability of services to low- and moderate-income
people, including through branches and other facilities located in low-
and moderate-income areas.
The federal banking agencies believe that providing flexibility to
intermediate small banks in how they apply their community development
resources to respond to community needs through the strategic use of
loans, investments, and services will reduce burden on these banks
while making the evaluation of their community development records more
effective.\7\
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\7\ A few commenters requested that the community development
test be available to banks with assets of more than $1 billion, for
the sake of increasing flexibility for those banks, too. The
agencies have not made this change. However, a large bank seeking
more flexibility than it finds in the present three-part test can
consider a strategic plan. See 12 CFR 25.27, 228.27, & 345.27.
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The agencies are making a non-substantive change to the proposed
criteria for a ``satisfactory'' rating on the community development
test (in Appendix A, Ratings, paragraph (d)(2)(i)) to conform those
criteria to the other ratings criteria. Under the proposal, a
``satisfactory'' rating would have required an intermediate small bank
to demonstrate ``adequate responsiveness to the community development
needs of its assessment area(s) or a broader statewide or regional area
that includes the bank's assessment area(s) through community
development loans, qualified investments, and community development
services.'' In the final rule, the agencies deleted the phrase ``or a
broader statewide or regional area that includes the bank's assessment
area(s)'' from the criteria for a ``satisfactory'' rating on the
community development test in order to conform the manner in which the
term ``assessment area'' is used in other parts of Appendix A.
Examiners will, however, continue to evaluate a bank's community
development activities in the broader statewide or regional area that
includes its assessment area(s) according to existing interagency
guidance.\8\
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\8\ See Interagency Questions and Answers Regarding Community
Reinvestment (``Q&A''), 66 FR 36620 et seq. (July 12, 2001)
(Q&A--.12(i)-5 and -6).
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The agencies are not revising the provision in the existing
regulations that permits any small bank, including an intermediate
small bank, to choose to be evaluated under the large bank lending,
investment, and service tests at its option. Any small bank that opts
to be evaluated under the lending, investment, and service tests will
be required to collect and report small business, small farm, and
community development loan data.\9\
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\9\ See 12 CFR 25.21(a)(3), 228.21(a)(3), & 345.21(a)(3).
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Community Development Definition

Comments on Proposed Rule

The regulations' present definition of ``community development''
covers four categories of activity. Three categories (affordable
housing, community services, and economic development) are defined in
terms of the activity's targeting of specific persons (low- or
moderate-income people in the first two categories, small farms or
businesses in the third). A fourth category (revitalization or
stabilization activities) is defined in terms of the activity's
targeting of specific areas, namely, low-or moderate-income census
tracts.
The OCC, the FDIC, and the Board proposed to amend two of the
categories--activities that revitalize or stabilize an area, and
affordable housing. Under one proposed amendment, a bank's support for
activities that revitalize or stabilize an area would receive
consideration not only in low- or moderate-income census tracts
(referred to as ``geographies'' in the regulations), but also in
``underserved rural areas.'' \10\ The proposal would thus expand the
number and kinds of rural areas in which bank activities that
revitalize or stabilize communities are eligible for community
development consideration (referred to herein as ``eligible rural
tracts''). The proposal responded to the scarcity of eligible rural
tracts, which appeared to limit the effectiveness of the regulations in
encouraging rural community development.\11\ The proposed amendment
would also give consideration to bank activities that

[[Page 44261]]

revitalize or stabilize designated disaster areas.
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\10\ Staff interpretations of activities that ``revitalize or
stabilize'' an area can be found in Q&A--.12(h)(4)-1 and .12(i)-4.
\11\ The scarcity is both absolute and relative. Only 15 percent
of nonmetropolitan tracts are now classified as ``low- or moderate-
income,'' and 59 percent of nonmetropolitan counties lack a single
low- or moderate-income tract. In comparison, 31 percent of
metropolitan tracts are classified as ``low- or moderate-income''
and only 18 percent of metropolitan counties lack a single low- or
moderate-income tract. See Robert B. Avery, Glenn B. Canner, et al.,
``Community Banks and Rural Development: Research Relating to
Proposals to Revise the Regulations That Implement the Community
Reinvestment Act,'' Federal Reserve Bulletin, Spring 2005, Table 14,
pp. 224-225.
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The agencies sought comment on three general alternatives for
increasing the number and kinds of rural tracts in which bank
activities are eligible for community development consideration. The
first alternative was to expand the definition of ``low- or moderate-
income'' tracts in rural areas. Two specific options were raised:
increasing the threshold for a low- or moderate-income tract from a
median income of 80 percent of the state nonmetropolitan median income
to 90 percent, or changing the baseline against which a nonmetropolitan
tract's median income is compared to the median income of the entire
state (not just its nonmetropolitan parts). The second alternative was
to retain the present definition of a tract's income status, but
identify a set of rural tracts that, while not low- or moderate-income,
were nonetheless shown by other relevant indicators to be
``underserved'' or otherwise in need of bank support to revitalize or
stabilize. Specific indicators on which the agencies sought comment
were rates of poverty, unemployment, and population loss used as
``distress'' indicators by the Community Development Financial
Institutions (CDFI) Fund, United States Department of the Treasury. The
third alternative was to consider as eligible any rural area that had
been designated by a Federal, State, tribal, or local government as in
need of revitalization or stabilization.
Under another proposed amendment, bank support for affordable
housing would receive consideration in ``underserved rural areas'' or
designated disaster areas even if the housing benefited individuals not
defined as ``low- or moderate-income.'' \12\ The agencies indicated
that the proposal's premise was that affordable housing--in addition to
other activities that revitalize and stabilize underserved rural
areas--may meet a critical need of individuals in certain underserved
rural areas, even if those individuals may not meet the technical
requirements of the definition of ``low- or moderate-income'' in the
regulation.
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\12\ Staff interpretations of ``affordable housing'' can be
found in Q&A --.12(h)(1)-1.
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Banks and community organizations alike generally supported
expanding the definition of ``community development'' to make bank
activities eligible for community development consideration in a larger
number of rural areas. Banks argued that having few or no eligible
tracts in their assessment areas meant they felt pressure to make
community development investments outside of their assessment areas
merely for the sake of their CRA evaluations.
Bank commenters suggested that ``rural'' be defined using existing
government definitions. Some commenters suggested using the Office of
Management and Budget's concept of nonmetropolitan areas (areas outside
Metropolitan Statistical Areas, or MSAs), though a few requested
flexibility to treat certain parts of MSAs as rural, too. Others
suggested the Census Bureau's definition of ``rural.'' Some suggested
using several criteria, including population density.
Banks asked that any rule distinguishing ``underserved'' rural
areas be simple. Some expressed concern that using the CDFI Fund
distress criteria would be complicated and cause uncertainty, but some
indicated the criteria were appropriate. Many banks suggested that an
area be eligible regardless of its income if targeted by a government
agency for redevelopment. Community banks expressed a strong preference
that a bank's support for meeting community needs such as education,
infrastructure, and healthcare be considered as ``community
development'' in rural communities of all kinds, not just
``underserved'' or low- or moderate-income communities.
Community organizations disagreed that all rural areas should be
eligible, but agreed that more rural areas should be eligible than are
now. Many requested that the agencies consider both expanding the
standard for classifying rural tracts as ``low- or moderate-income''
and adopting criteria such as the distress criteria of the CDFI Fund to
identify additional eligible tracts.\13\ At the same time, community
organizations generally sought to keep the proportion of eligible rural
tracts in rough parity with the proportion of eligible urban tracts.
---------------------------------------------------------------------------

\13\ On the whole, community organizations did not express a
strong preference between raising the threshold income for a
moderate-income tract to 90% of nonmetropolitan state median income
and changing the baseline against which a tract's income is measured
to the state median income. They generally opposed, however, a
threshold of 100% of nonmetropolitan state median income. Some
organizations that favored using the CDFI Fund distress criteria
suggested that additional criteria also be considered.
---------------------------------------------------------------------------

Like bank commenters, community organizations offered a variety of
suggestions for defining ``rural.'' For example, some suggested
including any area with a population of less than 10,000, while others
suggested using several criteria, including population, household
income, the area's economic base, and distance from a metropolitan
area. Some cautioned against treating exurbs of large MSAs as
``rural.''
As noted above, banks and community organizations alike generally
supported expanding the ``community development'' definition to include
activities that benefit underserved rural areas. Few comments
distinguished between the proposal to amend the ``revitalize or
stabilize'' category and the proposal to amend the ``affordable
housing'' category but, among those that did comment specifically on a
category, more commented specifically in favor of expanding the
``revitalize or stabilize'' category.
Banks favored revising the definition of ``community development''
to include activities in a designated disaster area. They noted that
such areas are easily identified and have special redevelopment needs.
Some, but not all, community organizations opposed the revision.
Organizations that opposed, and those that did not oppose, the revision
shared the view that the regulation should not give consideration to
bank responses to disasters that do not meet the needs of affected low-
or moderate-income people.

Provisions of Final Rule

The agencies are revising the definition of ``community
development'' to increase the number and kinds of rural tracts in which
bank activities are eligible for community development consideration.
In doing so, the agencies are revising the ``revitalize or stabilize''
category of the definition of ``community development'' to provide that
activities that revitalize or stabilize areas designated by the
agencies as ``distressed or underserved nonmetropolitan middle-income
geographies'' will qualify as community development activities.
The final rule uses the term ``nonmetropolitan,'' which means an
area outside of an MSA, to refer to rural areas. The final rule also
describes qualifying rural geographies as ``distressed or
underserved,'' while the proposal used only the term ``underserved.''
The agencies believe that the phrase ``distressed or underserved''
better describes the eligible geographies that will be designated using
the factors discussed more fully below.
Eligible rural tracts will continue to include tracts currently
defined as ``low-income'' or as ``moderate-income,'' and the agencies
have not revised the definitions of those terms. Eligible rural tracts
will also include middle-income, nonmetropolitan tracts designated by
the agencies as distressed or

[[Page 44262]]

underserved based on either or both of two sets of criteria: criteria
indicating a community is in distress (rates of poverty, unemployment,
and population loss), and criteria indicating a community may have
difficulty meeting essential community needs (population size, density,
and dispersion).
The agencies believe that using these criteria to identify eligible
areas has advantages over simply expanding the definition of ``low- or
moderate-income'' tracts for rural areas. The distress criteria permit
a more careful targeting of the middle-income tracts that are most in
need of revitalization or stabilization. Simply changing the definition
of ``moderate-income'' to include some presently middle-income tracts
would (a) fail to cover many rural middle-income tracts in distress and
(b) cover many tracts not necessarily in distress, or in less distress
than other rural tracts that would not be covered. In addition, some
rural communities, albeit middle-income and not necessarily in
distress, have such small and thinly distributed populations that they
have difficulty financing the fixed costs of essential community needs
such as essential infrastructure and community facilities; moreover,
residents may have to travel long distances to reach certain
facilities, such as hospitals. The challenges facing such communities
are reflected in several comments suggesting the agencies use factors
such as population size, density, and distance from a population center
to identify eligible areas. Simply changing the definition of
``moderate-income'' to include some presently middle-income tracts
would not effectively identify those communities either. Finally,
changing the definition of ``low- or moderate-income tract'' for one
purpose (evaluating community development activities) but not for other
purposes (evaluating retail lending and service activities) could
create confusion and the appearance of inconsistency.
To facilitate planning, the agencies will publish a list of
eligible rural tracts that are distressed or underserved on the Web
site of the Federal Financial Institutions Examination Council.\14\
Year-to-year changes in the tracts designated based on the distress
criteria are expected to be minimal; to account for such changes the
agencies will specify a uniform lag period--of at least one year--for
removal from the list of any tract designated based on those criteria.
The lag will help promote investments that take an extended period to
arrange. A qualifying loan, investment, or service in the area will
count so long as the bank made, or entered into a binding commitment to
make, the loan or investment or provided, or entered into a binding
commitment to provide, the service while the area was designated or
during the lag period.
---------------------------------------------------------------------------

\14\ The Web site address is: http://www.ffiec.gov.

---------------------------------------------------------------------------

The ``distressed or underserved'' designations will be based on
objective criteria. A middle-income, nonmetropolitan tract will be
designated if it is in a county that meets one or more of the following
triggers that the CDFI Fund employs as ``distress criteria'': (1) An
unemployment rate of at least 1.5 times the national average, (2) a
poverty rate of 20 percent or more, or (3) a population loss of 10
percent or more between the previous and most recent decennial census
or a net migration loss of 5 percent or more over the five-year period
preceding the most recent census.\15\ Activities qualify for
``revitalize or stabilize'' community development consideration in
these tracts, like in low- or moderate-income tracts, based on the
regulation and applicable interagency guidance.
---------------------------------------------------------------------------

\15\ 12 CFR 1805.201(b)(3). The CDFI Fund uses other criteria,
as well, including an income trigger different from the definition
of ``low- or moderate-income'' under the CRA regulations. The other
criteria, however, will not be used in the CRA regulation's
definition of ``community development.''
---------------------------------------------------------------------------

A middle-income, nonmetropolitan tract will also be designated if
it meets criteria for population size, density, and dispersion that
indicate the area's population is sufficiently small, thin, and distant
from a population center that the tract is likely to have difficulty
financing the fixed costs of meeting essential community needs. The
agencies will use as the basis for the designations the ``urban
influence codes'' maintained by the Economic Research Service of the
United States Department of Agriculture.\16\ In areas so designated,
bank financing for construction, expansion, improvement, maintenance,
or operation of essential infrastructure or facilities for health
services, education, public safety, public services, industrial parks,
or affordable housing generally will be considered to meet essential
community needs, so long as the infrastructure or facility serves low-
and moderate-income individuals. Other bank activities in such areas
generally will not qualify for revitalization or stabilization
consideration, unless the area meets the distress criteria. In these
cases, the agencies will continue to decide on a case-by-case basis
whether a particular activity qualifies for such consideration based on
the regulation and applicable interagency guidance.
---------------------------------------------------------------------------

\16\ The codes can be found at http://www.ers.usda.gov/

Briefing/Rurality/urbaninf/. The agencies are considering
designating middle-income tracts in the counties coded ``7,''
``10,'' ``11,'' or ``12.'' The counties coded ``11'' or ``12'' have
population densities under five people per square mile, are not
adjacent to either a metropolitan or micropolitan area, and do not
have a town with a population greater than 10,000. The counties
coded ``7'' or ``10'' have population densities between five and
seven people per square mile and do not have a town with a
population greater than 2,500, though they border a micropolitan or
small metropolitan area. These counties are concentrated in the
Great Plains, but appear elsewhere, too. A map at the Web site shows
where these counties are located.
---------------------------------------------------------------------------

The agencies are also revising the definition of ``community
development'' to make bank activities to revitalize or stabilize
designated disaster areas eligible for CRA consideration. Disaster
areas may be designated by Federal or State Governments. Such
designations include, for example, Major Disaster Declarations
administered by the Federal Emergency Management Agency. A designation
will expire for purposes of CRA when it expires according to the
applicable law under which it was declared. As the agencies indicated
with the proposal, examiners will give significant weight to the extent
to which a bank's revitalization activities in a disaster area benefit
low- or moderate-income individuals.
The final rule does not incorporate the specific proposal to amend
the ``affordable housing'' category of the community development
definition. The proposal would have included affordable housing that
benefits individuals who reside in underserved rural areas or
designated disaster areas, even if the individuals are not technically
``low- or moderate-income.'' The agencies believe it is appropriate to
maintain the focus of the separate ``affordable housing'' category on
characteristics of the residents of the housing, and not to expand this
category to consider characteristics of the residents' communities
without regard to the residents' income-level characteristics.\17\
Thus, under the regulation, a bank activity that has a primary purpose
of providing housing affordable to low- or moderate-income individuals
continues to qualify as ``community development'' regardless of the
location of the housing.\18\ In

[[Page 44263]]

addition, such an activity may receive additional weight in the
evaluation if the examiner determines that the activity helps to
revitalize or stabilize a low- or moderate-income census tract, a
distressed or underserved rural area, or a designated disaster area.
However, as described previously, a bank activity that provides
affordable housing, but not necessarily for low- or moderate-income
individuals, may qualify as an activity that revitalizes or stabilizes
an eligible nonmetropolitan area. For example, a bank activity that
provides housing for middle- or upper-income individuals in an eligible
rural area qualifies as ``community development'' when part of a bona
fide plan to revitalize or stabilize the community by attracting a
major new employer that will offer significant long-term employment
opportunities to low- and moderate-income members of the community.
---------------------------------------------------------------------------

\17\ In contrast to the lack of census tracts in rural areas
that meet the regulation's definition of ``low- or moderate-income''
geography, there is not a comparable lack of individuals residing in
rural areas who meet the regulation's definition of ``low- or
moderate-income'' individuals. Under the regulation's definition of
a ``low- or moderate-income'' individuals, the average
nonmetropolitan middle-income tract has a low- and moderate-income
population of 38 percent.
\18\ For guidance on application of the ``primary purpose''
standard, see Q&A --.12(i)-7.
---------------------------------------------------------------------------

Effect of Certain Credit Practices on CRA Evaluations

Comments on Proposed Rule

The OCC, the FDIC, and the Board proposed to revise the regulations
to address the impact on a bank's CRA rating of evidence of
discrimination or other illegal credit practices. The agencies proposed
that evidence of discrimination, or evidence of credit practices that
violate an applicable law, rule, or regulation, would adversely affect
an agency's evaluation of a bank's CRA performance. The agencies also
proposed to revise the regulations to include an illustrative list of
such practices. This list includes evidence of discrimination against
applicants on a prohibited basis in violation of, for example, the
Equal Credit Opportunity (15 U.S.C. 1691 et seq.) or Fair Housing Acts
(42 U.S.C. 3601 et seq.); evidence of illegal referral practices in
violation of section 8 of the Real Estate Settlement Procedures Act (12
U.S.C. 2607); evidence of violations of the Truth in Lending Act (15
U.S.C. 1601 et seq.) concerning a consumer's right to rescind a credit
transaction secured by a principal residence; evidence of violations of
the Home Ownership and Equity Protection Act (15 U.S.C. 1639); and
evidence of unfair or deceptive credit practices in violation of
section 5 of the Federal Trade Commission Act (15 U.S.C. 45(a)(1)).\19\
---------------------------------------------------------------------------

\19\ Evidence of credit practices that violate other laws, rules
or regulations, including a federal banking agency regulation or a
State law, if applicable, also may adversely affect a bank's CRA
evaluation.
---------------------------------------------------------------------------

Further, the March proposal clarified that a bank's evaluation
could be adversely affected by such practices regardless of whether the
practices involve loans in the bank's assessment area(s) or in any
other location or geography. In addition, as proposed, a bank's CRA
evaluation also could be adversely affected by evidence of such
practices by any affiliate in connection with loans in the bank's
assessment area(s), if any loans of that affiliate have been considered
in the bank's CRA evaluation.
Most community organizations strongly supported the proposal. Many
of these commenters recommended that the provision should be expanded
to include evidence of discriminatory or other illegal credit practices
by any affiliate of a bank, whether or not such affiliate's loans were
included in the bank's CRA evaluation. Some bank and bank trade
association commenters opposed the standard as unnecessary because
other legal remedies are available to address discriminatory or other
illegal credit practices. Many of these commenters also opposed
extending the ``illegal credit practices'' standard to loans by an
affiliate that are considered in a bank's lending performance.
Furthermore, a few large banks were concerned that their CRA
performance will be adversely affected by ``technical'' violations of
law.

Provisions of Final Rule

The joint final rule adopts without change the proposed amendments
to the agencies' regulations that address the impact on a bank's CRA
rating of evidence of discrimination or other illegal credit practices.
The final rule states that evidence of discrimination, or evidence of
credit practices that violate an applicable law, rule, or regulation,
adversely affects an agency's evaluation of a bank's CRA performance.
The rule includes an illustrative, but not comprehensive, list of such
practices. It also provides that a bank's evaluation is adversely
affected by such practices by the bank regardless of whether the
practices involve loans in the bank's assessment area(s) or in any
other location or geography. The rule also provides that 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. The
adverse effect on the bank's CRA rating of illegal credit practices by
an affiliate is limited to affiliate loans within the bank's assessment
area(s) because, under the regulations, a bank may not elect to include
as part of its CRA evaluation affiliate loans outside the bank's
assessment area(s).
The agencies believe that providing in the CRA regulations examples
of violations that give rise to adverse CRA consequences, rather than
having such examples solely in interagency guidance on the
regulations,\20\ will improve the usefulness of the regulations and
provide critical information in primary compliance source material.
Further, because affiliate loans may be included by a bank in it's
lending evaluation for favorable consideration, evidence of
discrimination or other illegal credit practices in an affiliate's
loans in an assessment area of the bank can adversely affect the bank's
CRA rating, if loans by that affiliate have been considered in the
bank's CRA evaluation. The agencies believe that the same CRA standards
generally should apply to loans included in the bank's CRA lending
record that are made by an affiliate in the bank's assessment area and
those that are made by the bank in any geography.
---------------------------------------------------------------------------

\20\ See Q&A--.28(c)-1.
---------------------------------------------------------------------------

Interagency Guidance

The agencies intend to issue interagency CRA guidance for comment
in the near future. The guidance will address new provisions adopted in
this joint final rule and related issues (for example, the appropriate
lag period for removal of a census tract from the list of designated
distressed or underserved nonmetropolitan middle-income geographies).
The guidance will also conform existing interagency questions and
answers to the regulatory revisions, where needed.

Effective Date

The joint final rule becomes effective September 1, 2005. The
agencies will issue interim interagency examination procedures for the
community development test applicable to intermediate small banks in
advance of the effective date of the regulation.
Section 302 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (CDRI), Pub. L. 103-325, authorizes a banking
agency to issue a rule that contains additional reporting, disclosure,
or other requirements to be effective before the first day of the
calendar quarter that begins on or after the date on which the
regulations are published in final form if the agency finds good cause
for an earlier effective date. 12 U.S.C. 4802(b)(1). This joint final
rule takes effect September 1, 2005. As discussed earlier in this
``Supplementary Information,'' the changes adopted by

[[Page 44264]]

this joint final rule reduce regulatory burden by extending eligibility
for streamlined lending evaluations and the exemption from data
reporting to banks under $1 billion without regard to holding company
affiliation. Because this joint final rule eliminates data collection
and reporting burden for banks with assets between $250 million and $1
billion, and banks with assets below $250 million that are affiliated
with a holding company with bank and thrift assets of $1 billion or
above, and will provide greater flexibility in the CRA evaluations of
such institutions, the agencies find good cause for the September 1,
2005, effective date.

Regulatory Flexibility Act

OCC and FDIC: Under section 605(b) of the Regulatory Flexibility
Act (RFA), 5 U.S.C. 605(b), the regulatory flexibility analysis
otherwise required under section 604 of the RFA is not required if an
agency certifies, along with a statement providing the factual basis
for such certification, that the rule will not have a significant
economic impact on a substantial number of small entities. The OCC and
the FDIC have reviewed the impact of this joint final rule on small
banks and certify that the joint final rule will not have a significant
economic impact on a substantial number of small entities.
The Small Business Administration (SBA) has defined ``small
entities'' for banking purposes as a bank or savings institution with
less than $150 million in assets. See 13 CFR 121.201. This joint final
rule primarily affects banks with assets of at least $250 million and
under $1 billion. The amendments decrease the regulatory burden for
banks within that asset range by relieving them of certain reporting
and recordkeeping requirements applicable to larger institutions.
The elimination of the $1 billion holding company threshold as a
factor in determining whether banks will be subject to the streamlined
CRA examination or the more in-depth CRA examination applicable to
larger institutions will affect a limited number of small banks, which
are affiliated with holding companies with assets over $1 billion. The
FDIC estimates that only 110 of approximately 5,300 FDIC-regulated
banks had assets of under $150 million and were affiliated with a
holding company with over $1 billion in assets. The OCC estimates that
only 36 of approximately 2,000 OCC-regulated banks met these criteria.
Because so few small banks will be affected by the revisions to Parts
25 and 345, a regulatory flexibility analysis is not required.
Furthermore, the OCC and the FDIC did not receive any comments
regarding the March proposal's economic impact on small banks with
assets of under $150 million.
Board: The Board has prepared a final regulatory flexibility
analysis as required by the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.).
1. Statement of the need for and objectives of the final rule. As
described in the SUPPLEMENTARY INFORMATION section, the Board, together
with the Office of the Comptroller of the Currency and the Federal
Deposit Insurance Corporation, seeks to improve the effectiveness of
the CRA regulations in placing performance over process, promoting
consistency in evaluations, and eliminating unnecessary burden. The
final rule is intended to reduce unnecessary burden while maintaining
or improving CRA's effectiveness in evaluating performance.
2. Summary of issues raised by comments in response to the initial
regulatory flexibility analysis. The Board received several comments on
matters raised in its initial regulatory flexibility analysis. As
described more fully in the SUPPLEMENTARY INFORMATION section, a number
of commenters supported expansion of the number and kinds of rural
census tracts eligible for community development consideration. Several
banks expressed concern that definitions of eligible rural census
tracts would impose burden on them to document an activity's
qualification, and urged the use of simple, objective definitions,
including if possible the use of definitions from existing federal
programs. In response, the final rule defines ``distressed or
underserved'' rural areas with reference to objective criteria set
forth by the Department of the Treasury (CDFI Fund) and the Department
of Agriculture, and it defines ``rural'' with reference to objective
criteria set forth by the Office of Management and Budget. The agencies
also have agreed that the Federal Financial Institutions Examination
Council will publish and update an annual list of eligible rural census
tracts, and will allow for a lag time before a tract loses its
designation.
As is also described in the SUPPLEMENTARY INFORMATION section, the
agencies received a number of comments on provisions regarding the
effect of evidence of illegal credit practices on CRA evaluations.
Several commenters asserted that the proposal amounted to superimposing
consumer credit laws onto CRA examinations and ratings. The Board notes
that these provisions of the final rule would not subject any banks of
any size to consumer credit laws to which they are not already subject;
and hence, would not place new compliance, reporting, or recordkeeping
requirements on small institutions.
3. Description of small entities affected by the final rule. The
final rule applies to all state-chartered banks that are members of the
Federal Reserve System; there are approximately 922 such banks. The RFA
requires the Board to consider the effect of the final rule on small
entities, which are defined for RFA purposes as all banks with assets
of less than $150 million. There are 419 state member banks with assets
of less than $150 million. All but about 12 state member banks with
assets of less than $150 million are already subject to a streamlined
CRA evaluation that is not affected by this final rule. The rule
eliminates data reporting requirements for these 12 state member banks
by eliminating holding-company affiliation as a disqualification for
treatment as a ``small bank'' under the CRA regulations.
4. Reporting, recordkeeping, and other compliance requirements. The
final rule does not impose any new reporting or recordkeeping
requirements, as defined in section 603 of the RFA. As noted, the rule
eliminates holding-company affiliation as a disqualification for
treatment as a ``small bank'' under the CRA regulations. Accordingly,
the rule eliminates data reporting requirements for about 12 state
member banks with assets of less than $150 million. As noted above, all
other state member banks with assets of less than $150 million are
already exempt from this reporting requirement.
As is described in section 2 of this regulatory flexibility
analysis, the Board believes that the revisions to the definition of
``community development'' do not place additional compliance costs or
burdens on small institutions. The Board believes the same of the
provisions regarding the effect of evidence of illegal credit practices
on CRA evaluations.
5. Steps taken to minimize the economic impact on small entities.
The final rule maintains the approach of the existing CRA regulations
in exempting small entities from reporting requirements and providing
for streamlined lending evaluations for small entities. A complete
exemption of small entities from all of the CRA's requirements would be
impermissible under the CRA statute. As noted, of 419 state member
banks with assets of less than $150 million, all but 12 already were
subject to a streamlined CRA process. The final rule minimizes the
economic impact on small entities by

[[Page 44265]]

making these 12 state member banks eligible for the streamlined CRA
process.

Executive Order 12866

The OCC has determined that this joint final rule is not a
significant regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency
prepare a budgetary impact statement before promulgating any rule
likely to result in a Federal mandate that may result in the
expenditure by State, local, and tribal governments, in the aggregate,
or by the private sector of $100 million or more in any one year. If a
budgetary impact statement is required, section 205 of the Unfunded
Mandates Act also requires an agency to identify and consider a
reasonable number of regulatory alternatives before promulgating a
rule. The OCC has determined that the joint final rule will not result
in expenditures by State, local, and tribal governments, or by the
private sector, of $100 million or more in any one year. Accordingly,
the joint final rule is not subject to section 202 of the Unfunded
Mandates Act.

Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act
of 1995, the agencies may not conduct or sponsor, and the respondent is
not required to respond to, an information collection unless it
displays a currently valid Office of Management and Budget (OMB)
control number (OCC, 1557-0160; Board, 7100-0197; and FDIC, 3064-0092).
The OCC and the FDIC submitted their documentation to OMB for
review and approval and the information collections have been approved.
The Board has approved this revised information collection under its
delegated authority from OMB.
Title of Information Collection:
OCC: Community Reinvestment Act Regulation--12 CFR 25.
Board: Recordkeeping, Reporting, and Disclosure Requirements in
Connection with Regulation BB (Community Reinvestment Act).
FDIC: Community Reinvestment--12 CFR 345.
Frequency of Response: Annual.
Affected Public:
OCC: National banks.
Board: State member banks.
FDIC: State nonmember banks.
Abstract: This Paperwork Reduction Act section estimates the burden
that will be associated with the regulations due to the changes to the
definition of ``small bank'' to increase the asset threshold from $250
million to $1 billion and eliminate any consideration of holding-
company size. Under the two changes, approximately 1,200 additional
banks would be evaluated as small or intermediate small banks. That
estimate is based on data for all FDIC-insured institutions that filed
Call Reports for year-end 2004. The change to adopt a separate
community development test in the performance standards for
intermediate small banks will have no impact on paperwork burden
because the evaluation is based on information prepared by examiners.
Estimated Paperwork Burden under the Proposal:
OCC:
Number of Respondents: 1,853.
Estimated Time per Response: Small business and small farm loan
register, 219 hours; consumer loan data, 326 hours; other loan data, 25
hours; assessment area delineation, 2 hours; small business and small
farm loan data, 8 hours; community development loan data, 13 hours;
HMDA out-of-MSA loan data, 253 hours; data on lending by a consortium
or third party, 17 hours; affiliated lending data, 38 hours; request
for designation as a wholesale or limited purpose bank, 4 hours;
strategic plan, 275 hours; and public file, 10 hours.
Total Estimated Annual Burden: 160,542 hours.
Board:
Number of Respondents: 914.
Estimated Time per Response: Small business and small farm loan
register, 219 hours; consumer loan data, 326 hours; other loan data, 25
hours; assessment area delineation, 2 hours; small business and small
farm loan data, 8 hours; community development loan data, 13 hours;
HMDA out-of-MSA loan data, 253 hours; data on lending by a consortium
or third party, 17 hours; affiliated lending data, 38 hours; request
for designation as a wholesale or limited purpose bank, 4 hours; and
public file, 10 hours.
Total Estimated Annual Burden: 97,017 hours.
FDIC:
Number of Respondents: 5,264.
Estimated Time per Response: Small business and small farm loan
register, 219 hours; consumer loan data, 326 hours; other loan data, 25
hours; assessment area delineation, 2 hours; small business and small
farm loan data, 8 hours; community development loan data, 13 hours;
HMDA out-of-MSA loan data, 253 hours; data on lending by a consortium
or third party, 17 hours; affiliated lending data, 38 hours; request
for designation as a wholesale or limited purpose bank, 4 hours; and
public file, 10 hours.
Total Estimated Annual Burden: 203,589 hours.
Comment Request:
Comments continue to be invited on:
(a) Whether the collection of information is necessary for the
proper performance of the agencies' functions, including whether the
information has practical utility;
(b) The accuracy of the estimates of the burden of the information
collection, including the validity of the methodology and assumptions
used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
Comments should be addressed to:
OCC: Mary H. Gottlieb or Camille Dixon, Office of the Comptroller
of the Currency, Legislative and Regulatory Activities Division,
Attention: Docket No. 05-11, 250 E Street, SW., Mailstop 8-4,
Washington, DC 20219. Due to delays in paper mail in the Washington
area, commenters are encouraged to submit their comments by fax to
(202) 874-4889 or by e-mail to camille.dixon@occ.treas.gov.
Board: Comments should refer to Docket No. R-1225 and may be mailed
to Jennifer J. Johnson, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, NW., Washington,
DC 20551. Please consider submitting your comments through the Board's
Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm
, by e-mail to regs.comments@federalreserve.gov, or by

fax to the Office of the Secretary at (202) 452-3819 or (202) 452-3102.
Rules proposed by the Board and other Federal agencies may also be
viewed and commented on at http://www.regulations.gov All public comments are available from the Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
as submitted,

except as necessary for technical reasons. Accordingly, your comments
will not be edited to remove any identifying or contact information.

[[Page 44266]]

Public comments may also be viewed electronically or in paper in Room
MP-500 of the Board's Martin Building (C and 20th Streets, NW.) between
9 a.m. and 5 p.m. on weekdays.
FDIC: Leneta G. Gregorie, Legal Division, Room MB-3082, Federal
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC
20429. All comments should refer to the title of the proposed
collection. In the alternative, comments may be hand-delivered to the
guard station at the rear of the 17th Street Building (located on F
Street), on business days between 7 a.m. and 5 p.m.; submitted via the
Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html
; or submitted by e-mail: comments@FDIC.gov. Comments

received will be posted without change to http://www.FDIC.gov/regulations/laws/federal/propose.html
, including any personal

information provided. Comments may also be inspected and photocopied in
the FDIC Public Information Center, Room 100, 801 17th Street, NW.,
Washington, DC, between 9 a.m. and 4:30 p.m. on business days.
Comments should also be sent to Mark D. Menchik, Desk Officer,
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, 725 17th Street, NW., Washington, DC 20503.
Comments may also be sent by e-mail to Mark_D._Menchik@omb.eop.gov.

Executive Order 13132

The OCC has determined that this joint final rule does not have any
Federalism implications as required by Executive Order 13132.

List of Subjects

12 CFR Part 25

Community development, Credit, Investments, National banks,
Reporting and recordkeeping requirements.

12 CFR Part 228

Banks, Banking, Community development, Credit, Investments,
Reporting and recordkeeping requirements.

12 CFR Part 345

Banks, Banking, Community development, Credit, Investments,
Reporting and recordkeeping requirements.

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

0
For the reasons discussed in the joint preamble, part 25 of chapter I
of title 12 of the Code of Federal Regulations is amended as follows:

PART 25--COMMUNITY REINVESTMENT ACT AND INTERSTATE DEPOSIT
PRODUCTION REGULATIONS

0
1. The authority citation for part 25 continues to read as follows:

Authority: 12 U.S.C. 21, 22, 26, 27, 30, 36, 93a, 161, 215,
215a, 481, 1814, 1816, 1828(c), 1835a, 2901 through 2907, and 3101
through 3111.

0
2. In Sec. 25.12, revise paragraphs (g)(4) and (u) to read as follows:

Sec. 25.12 Definitions.

* * * * *
(g) Community development means:
* * * * *
(4) Activities that revitalize or stabilize--
(i) Low-or moderate-income geographies;
(ii) Designated disaster areas; or
(iii) Distressed or underserved nonmetropolitan middle-income
geographies designated by the Board of Governors of the Federal Reserve
System, Federal Deposit Insurance Corporation, and OCC, based on--
(A) Rates of poverty, unemployment, and population loss; or
(B) Population size, density, and dispersion. Activities revitalize
and stabilize geographies designated based on population size, density,
and dispersion if they help to meet essential community needs,
including needs of low- and moderate-income individuals.
* * * * *
(u) Small bank--(1) Definition. Small bank means a bank that, as of
December 31 of either of the prior two calendar years, had assets of
less than $1 billion. Intermediate small bank means a small bank with
assets of at least $250 million as of December 31 of both of the prior
two calendar years and less than $1 billion as of December 31 of either
of the prior two calendar years.
(2) Adjustment. The dollar figures in paragraph (u)(1) of this
section shall be adjusted annually and published by the OCC, based on
the year-to-year change in the average of the Consumer Price Index for
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for
each twelve-month period ending in November, with rounding to the
nearest million.
* * * * *

0
3. Revise Sec. 25.26 to read as follows:

Sec. 25.26 Small bank performance standards.

(a) Performance criteria--(1) Small banks with assets of less than
$250 million. The OCC evaluates the record of a small bank that is not,
or that was not during the prior calendar year, an intermediate small
bank, of helping to meet the credit needs of its assessment area(s)
pursuant to the criteria set forth in paragraph (b) of this section.
(2) Intermediate small banks. The OCC evaluates the record of a
small bank that is, or that was during the prior calendar year, an
intermediate small bank, of helping to meet the credit needs of its
assessment area(s) pursuant to the criteria set forth in paragraphs (b)
and (c) of this section.
(b) Lending test. A small bank's lending performance is evaluated
pursuant to the following criteria:
(1) The bank's loan-to-deposit ratio, adjusted for seasonal
variation, and, as appropriate, other lending-related activities, such
as loan originations for sale to the secondary markets, community
development loans, or qualified investments;
(2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s);
(3) The bank's record of lending to and, as appropriate, engaging
in other lending-related activities for borrowers of different income
levels and businesses and farms of different sizes;
(4) The geographic distribution of the bank's loans; and
(5) The bank's record of taking action, if warranted, in response
to written complaints about its performance in helping to meet credit
needs in its assessment area(s).
(c) Community development test. An intermediate small bank's
community development performance also is evaluated pursuant to the
following criteria:
(1) The number and amount of community development loans;
(2) The number and amount of qualified investments;
(3) The extent to which the bank provides community development
services; and
(4) The bank's responsiveness through such activities to community
development lending, investment, and services needs.

0
4. Revise Sec. 25.28, paragraph (c) to read as follows:

[[Page 44267]]

Sec. 25.28 Assigned ratings.

* * * * *
(c) Effect of evidence of discriminatory or other illegal credit
practices.
(1) The OCC's evaluation of a bank's CRA performance is adversely
affected by evidence of discriminatory or other illegal credit
practices in any geography by the bank or in any assessment area by any
affiliate whose loans have been considered as part of the bank's
lending performance. In connection with any type of lending activity
described in Sec. 25.22(a), evidence of discriminatory or other credit
practices that violate an applicable law, rule, or regulation includes,
but is not limited to:
(i) Discrimination against applicants on a prohibited basis in
violation, for example, of the Equal Credit Opportunity Act or the Fair
Housing Act;
(ii) Violations of the Home Ownership and Equity Protection Act;
(iii) Violations of section 5 of the Federal Trade Commission Act;
(iv) Violations of section 8 of the Real Estate Settlement
Procedures Act; and
(v) Violations of the Truth in Lending Act provisions regarding a
consumer's right of rescission.
(2) In determining the effect of evidence of practices described in
paragraph (c)(1) of this section on the bank's assigned rating, the OCC
considers the nature, extent, and strength of the evidence of the
practices; the policies and procedures that the bank (or affiliate, as
applicable) has in place to prevent the practices; any corrective
action that the bank (or affiliate, as applicable) has taken or has
committed to take, including voluntary corrective action resulting from
self-assessment; and any other relevant information.

0
5. In Appendix A to part 25, revise paragraph (d) to read as follows:

Appendix A to Part 25--Ratings

* * * * *
(d) Banks evaluated under the small bank performance standards.
(1) Lending test ratings. (i) Eligibility for a satisfactory lending
test rating. The OCC rates a small bank's lending performance
``satisfactory'' if, in general, the bank demonstrates:
(A) A reasonable loan-to-deposit ratio (considering seasonal
variations) given the bank's size, financial condition, the credit
needs of its assessment area(s), and taking into account, as
appropriate, other lending-related activities such as loan
originations for sale to the secondary markets and community
development loans and qualified investments;
(B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
(C) A distribution of loans to and, as appropriate, other
lending-related activities for individuals of different income
levels (including low- and moderate-income individuals) and
businesses and farms of different sizes that is reasonable given the
demographics of the bank's assessment area(s);
(D) A record of taking appropriate action, when warranted, in
response to written complaints, if any, about the bank's performance
in helping to meet the credit needs of its assessment area(s); and
(E) A reasonable geographic distribution of loans given the
bank's assessment area(s).
(ii) Eligibility for an ``outstanding'' lending test rating. A
small bank that meets each of the standards for a ``satisfactory''
rating under this paragraph and exceeds some or all of those
standards may warrant consideration for a lending test rating of
``outstanding.''
(iii) Needs to improve or substantial noncompliance ratings. A
small bank may also receive a lending test rating of ``needs to
improve'' or ``substantial noncompliance'' depending on the degree
to which its performance has failed to meet the standard for a
``satisfactory'' rating.
(2) Community development test ratings for intermediate small
banks--(i) Eligibility for a satisfactory community development test
rating. The OCC rates an intermediate small bank's community
development performance ``satisfactory'' if the bank demonstrates
adequate responsiveness to the community development needs of its
assessment area(s) through community development loans, qualified
investments, and community development services. The adequacy of the
bank's response will depend on its capacity for such community
development activities, its assessment area's need for such
community development activities, and the availability of such
opportunities for community development in the bank's assessment
area(s).
(ii) Eligibility for an outstanding community development test
rating. The OCC rates an intermediate small bank's community
development performance ``outstanding'' if the bank demonstrates
excellent responsiveness to community development needs in its
assessment area(s) through community development loans, qualified
investments, and community development services, as appropriate,
considering the bank's capacity and the need and availability of
such opportunities for community development in the bank's
assessment area(s).
(iii) Needs to improve or substantial noncompliance ratings. An
intermediate small bank may also receive a community development
test rating of ``needs to improve'' or ``substantial noncompliance''
depending on the degree to which its performance has failed to meet
the standards for a ``satisfactory'' rating.
(3) Overall rating--(i) Eligibility for a satisfactory overall
rating. No intermediate small bank may receive an assigned overall
rating of ``satisfactory'' unless it receives a rating of at least
``satisfactory'' on both the lending test and the community
development test.
(ii) Eligibility for an outstanding overall rating. (A) An
intermediate small bank that receives an ``outstanding'' rating on
one test and at least ``satisfactory'' on the other test may receive
an assigned overall rating of ``outstanding.''
(B) A small bank that is not an intermediate small bank that
meets each of the standards for a ``satisfactory'' rating under the
lending test and exceeds some or all of those standards may warrant
consideration for an overall rating of ``outstanding.'' In assessing
whether a bank's performance is ``outstanding,'' the OCC considers
the extent to which the bank exceeds each of the performance
standards for a ``satisfactory'' rating and its performance in
making qualified investments and its performance in providing
branches and other services and delivery systems that enhance credit
availability in its assessment area(s).
(iii) Needs to improve or substantial noncompliance overall
ratings. A small bank may also receive a rating of ``needs to
improve'' or ``substantial noncompliance'' depending on the degree
to which its performance has failed to meet the standards for a
``satisfactory'' rating.
* * * * *

Federal Reserve System

12 CFR Chapter II

Authority and Issuance

0
For the reasons set forth in the joint preamble, the Board of Governors
of the Federal Reserve System amends part 228 of chapter II of title 12
of the Code of Federal Regulations as follows:

PART 228--COMMUNITY REINVESTMENT (REGULATION BB)

0
1. The authority citation for part 228 continues to read as follows:

Authority: 12 U.S.C. 321, 325, 1828(c), 1842, 1843, 1844, and
2901 et seq.

0
2. In Sec. 228.12, revise paragraphs (g)(4) and (u) to read as
follows:

Sec. 228.12 Definitions.

* * * * *
(g) Community development means:
* * * * *
(4) Activities that revitalize or stabilize--
(i) Low-or moderate-income geographies;
(ii) Designated disaster areas; or
(iii) Distressed or underserved nonmetropolitan middle-income
geographies designated by the Board, Federal Deposit Insurance
Corporation, and Office of the Comptroller of the Currency, based on--
(A) Rates of poverty, unemployment, and population loss; or
(B) Population size, density, and dispersion. Activities revitalize
and stabilize geographies designated based on population size, density,
and dispersion if they help to meet essential

[[Page 44268]]

community needs, including needs of low- and moderate-income
individuals.
* * * * *
(u) Small bank--(1) Definition. Small bank means a bank that, as of
December 31 of either of the prior two calendar years, had assets of
less than $1 billion. Intermediate small bank means a small bank with
assets of at least $250 million as of December 31 of both of the prior
two calendar years and less than $1 billion as of December 31 of either
of the prior two calendar years.
(2) Adjustment. The dollar figures in paragraph (u)(1) of this
section shall be adjusted annually and published by the Board, based on
the year-to-year change in the average of the Consumer Price Index for
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for
each twelve-month period ending in November, with rounding to the
nearest million.
* * * * *

0
3. Revise Sec. 228.26 to read as follows:

Sec. 228.26 Small bank performance standards.

(a) Performance criteria--(1) Small banks with assets of less than
$250 million. The Board evaluates the record of a small bank that is
not, or that was not during the prior calendar year, an intermediate
small bank, of helping to meet the credit needs of its assessment
area(s) pursuant to the criteria set forth in paragraph (b) of this
section.
(2) Intermediate small banks. The Board evaluates the record of a
small bank that is, or that was during the prior calendar year, an
intermediate small bank, of helping to meet the credit needs of its
assessment area(s) pursuant to the criteria set forth in paragraphs (b)
and (c) of this section.
(b) Lending test. A small bank's lending performance is evaluated
pursuant to the following criteria:
(1) The bank's loan-to-deposit ratio, adjusted for seasonal
variation, and, as appropriate, other lending-related activities, such
as loan originations for sale to the secondary markets, community
development loans, or qualified investments;
(2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s);
(3) The bank's record of lending to and, as appropriate, engaging
in other lending-related activities for borrowers of different income
levels and businesses and farms of different sizes;
(4) The geographic distribution of the bank's loans; and
(5) The bank's record of taking action, if warranted, in response
to written complaints about its performance in helping to meet credit
needs in its assessment area(s).
(c) Community development test. An intermediate small bank's
community development performance also is evaluated pursuant to the
following criteria:
(1) The number and amount of community development loans;
(2) The number and amount of qualified investments;
(3) The extent to which the bank provides community development
services; and
(4) The bank's responsiveness through such activities to community
development lending, investment, and services needs.

0
4. Revise Sec. 228.28(c) to read as follows:

Sec. 228.28 Assigned ratings.

* * * * *
(c) Effect of evidence of discriminatory or other illegal credit
practices. (1) The Board's evaluation of a bank's CRA performance is
adversely affected by evidence of discriminatory or other illegal
credit practices in any geography by the bank or in any assessment area
by any affiliate whose loans have been considered as part of the bank's
lending performance. In connection with any type of lending activity
described in Sec. 228.22(a), evidence of discriminatory or other
credit practices that violate an applicable law, rule, or regulation
includes, but is not limited to:
(i) Discrimination against applicants on a prohibited basis in
violation, for example, of the Equal Credit Opportunity Act or the Fair
Housing Act;
(ii) Violations of the Home Ownership and Equity Protection Act;
(iii) Violations of section 5 of the Federal Trade Commission Act;
(iv) Violations of section 8 of the Real Estate Settlement
Procedures Act; and
(v) Violations of the Truth in Lending Act provisions regarding a
consumer's right of rescission.
(2) In determining the effect of evidence of practices described in
paragraph (c)(1) of this section on the bank's assigned rating, the
Board considers the nature, extent, and strength of the evidence of the
practices; the policies and procedures that the bank (or affiliate, as
applicable) has in place to prevent the practices; any corrective
action that the bank (or affiliate, as applicable) has taken or has
committed to take, including voluntary corrective action resulting from
self-assessment; and any other relevant information.

0
5. In Appendix A to part 228, revise paragraph (d) to read as follows:

Appendix A to Part 228--Ratings

* * * * *

(d) Banks evaluated under the small bank performance standards.
(1) Lending test ratings. (i) Eligibility for a satisfactory lending
test rating. The Board rates a small bank's lending performance
``satisfactory'' if, in general, the bank demonstrates:
(A) A reasonable loan-to-deposit ratio (considering seasonal
variations) given the bank's size, financial condition, the credit
needs of its assessment area(s), and taking into account, as
appropriate, other lending-related activities such as loan
originations for sale to the secondary markets and community
development loans and qualified investments;
(B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
(C) A distribution of loans to and, as appropriate, other
lending-related activities for individuals of different income
levels (including low- and moderate-income individuals) and
businesses and farms of different sizes that is reasonable given the
demographics of the bank's assessment area(s);
(D) A record of taking appropriate action, when warranted, in
response to written complaints, if any, about the bank's performance
in helping to meet the credit needs of its assessment area(s); and
(E) A reasonable geographic distribution of loans given the
bank's assessment area(s).
(ii) Eligibility for an ``outstanding'' lending test rating. A
small bank that meets each of the standards for a ``satisfactory''
rating under this paragraph and exceeds some or all of those
standards may warrant consideration for a lending test rating of
``outstanding.''
(iii) Needs to improve or substantial noncompliance ratings. A
small bank may also receive a lending test rating of ``needs to
improve'' or ``substantial noncompliance'' depending on the degree
to which its performance has failed to meet the standard for a
``satisfactory'' rating.
(2) Community development test ratings for intermediate small
banks--(i) Eligibility for a satisfactory community development test
rating. The Board rates an intermediate small bank's community
development performance ``satisfactory'' if the bank demonstrates
adequate responsiveness to the community development needs of its
assessment area(s) through community development loans, qualified
investments, and community development services. The adequacy of the
bank's response will depend on its capacity for such community
development activities, its assessment area's need for such
community development activities, and the availability of such
opportunities for community development in the bank's assessment
area(s).
(ii) Eligibility for an outstanding community development test
rating. The Board rates an intermediate small bank's community
development performance ``outstanding'' if the bank demonstrates
excellent responsiveness to community

[[Page 44269]]

development needs in its assessment area(s) through community
development loans, qualified investments, and community development
services, as appropriate, considering the bank's capacity and the
need and availability of such opportunities for community
development in the bank's assessment area(s).
(iii) Needs to improve or substantial noncompliance ratings. An
intermediate small bank may also receive a community development
test rating of ``needs to improve'' or ``substantial noncompliance''
depending on the degree to which its performance has failed to meet
the standards for a ``satisfactory'' rating.
(3) Overall rating--(i) Eligibility for a satisfactory overall
rating. No intermediate small bank may receive an assigned overall
rating of ``satisfactory'' unless it receives a rating of at least
``satisfactory'' on both the lending test and the community
development test.
(ii) Eligibility for an outstanding overall rating. (A) An
intermediate small bank that receives an ``outstanding'' rating on
one test and at least ``satisfactory'' on the other test may receive
an assigned overall rating of ``outstanding.''
(B) A small bank that is not an intermediate small bank that
meets each of the standards for a ``satisfactory'' rating under the
lending test and exceeds some or all of those standards may warrant
consideration for an overall rating of ``outstanding.'' In assessing
whether a bank's performance is ``outstanding,'' the Board considers
the extent to which the bank exceeds each of the performance
standards for a ``satisfactory'' rating and its performance in
making qualified investments and its performance in providing
branches and other services and delivery systems that enhance credit
availability in its assessment area(s).
(iii) Needs to improve or substantial noncompliance overall
ratings. A small bank may also receive a rating of ``needs to
improve'' or ``substantial noncompliance'' depending on the degree
to which its performance has failed to meet the standards for a
``satisfactory'' rating.
* * * * *

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

0
For the reasons set forth in the joint preamble, the Board of Directors
of the Federal Deposit Insurance Corporation amends part 345 of chapter
III of title 12 of the Code of Federal Regulations to read as follows:

PART 345--COMMUNITY REINVESTMENT

0
1. The authority citation for part 345 continues to read as follows:

Authority: 12 U.S.C. 1814-1817, 1819-1820, 1828, 1831u and 2901-
2907, 3103-3104, and 3108(a).

0
2. In Sec. 345.12, revise paragraphs (g)(4) and (u) to read as
follows:

Sec. 345.12 Definitions.

* * * * *
(g) Community development means:
* * * * *
(4) Activities that revitalize or stabilize--
(i) Low-or moderate-income geographies;
(ii) Designated disaster areas; or
(iii) Distressed or underserved nonmetropolitan middle-income
geographies designated by the Board of Governors of the Federal Reserve
System, FDIC, and Office of the Comptroller of the Currency, based on--
(A) Rates of poverty, unemployment, and population loss; or
(B) Population size, density, and dispersion. Activities revitalize
and stabilize geographies designated based on population size, density,
and dispersion if they help to meet essential community needs,
including needs of low- and moderate-income individuals.
* * * * *
(u) Small bank--(1) Definition. Small bank means a bank that, as of
December 31 of either of the prior two calendar years, had assets of
less than $1 billion. Intermediate small bank means a small bank with
assets of at least $250 million as of December 31 of both of the prior
two calendar years and less than $1 billion as of December 31 of either
of the prior two calendar years.
(2) Adjustment. The dollar figures in paragraph (u)(1) of this
section shall be adjusted annually and published by the FDIC, based on
the year-to-year change in the average of the Consumer Price Index for
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for
each twelve-month period ending in November, with rounding to the
nearest million.
* * * * *

0
3. Revise Sec. 345.26 to read as follows:

Sec. 345.26 Small bank performance standards.

(a) Performance criteria--(1) Small banks with assets of less than
$250 million. The FDIC evaluates the record of a small bank that is
not, or that was not during the prior calendar year, an intermediate
small bank, of helping to meet the credit needs of its assessment
area(s) pursuant to the criteria set forth in paragraph (b) of this
section.
(2) Intermediate small banks. The FDIC evaluates the record of a
small bank that is, or that was during the prior calendar year, an
intermediate small bank, of helping to meet the credit needs of its
assessment area(s) pursuant to the criteria set forth in paragraphs (b)
and (c) of this section.
(b) Lending test. A small bank's lending performance is evaluated
pursuant to the following criteria:
(1) The bank's loan-to-deposit ratio, adjusted for seasonal
variation, and, as appropriate, other lending-related activities, such
as loan originations for sale to the secondary markets, community
development loans, or qualified investments;
(2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s);
(3) The bank's record of lending to and, as appropriate, engaging
in other lending-related activities for borrowers of different income
levels and businesses and farms of different sizes;
(4) The geographic distribution of the bank's loans; and
(5) The bank's record of taking action, if warranted, in response
to written complaints about its performance in helping to meet credit
needs in its assessment area(s).
(c) Community development test. An intermediate small bank's
community development performance also is evaluated pursuant to the
following criteria:
(1) The number and amount of community development loans;
(2) The number and amount of qualified investments;
(3) The extent to which the bank provides community development
services; and
(4) The bank's responsiveness through such activities to community
development lending, investment, and services needs.

0
4. Revise Sec. 345.28(c) to read as follows:

Sec. 345.28 Assigned ratings.

* * * * *
(c) Effect of evidence of discriminatory or other illegal credit
practices. (1) The FDIC's evaluation of a bank's CRA performance is
adversely affected by evidence of discriminatory or other illegal
credit practices in any geography by the bank or in any assessment area
by any affiliate whose loans have been considered as part of the bank's
lending performance. In connection with any type of lending activity
described in Sec. 345.22(a), evidence of discriminatory or other
credit practices that violate an applicable law, rule, or regulation
includes, but is not limited to:
(i) Discrimination against applicants on a prohibited basis in
violation, for example, of the Equal Credit Opportunity Act or the Fair
Housing Act;

[[Page 44270]]

(ii) Violations of the Home Ownership and Equity Protection Act;
(iii) Violations of section 5 of the Federal Trade Commission Act;
(iv) Violations of section 8 of the Real Estate Settlement
Procedures Act; and
(v) Violations of the Truth in Lending Act provisions regarding a
consumer's right of rescission.
(2) In determining the effect of evidence of practices described in
paragraph (c)(1) of this section on the bank's assigned rating, the
FDIC considers the nature, extent, and strength of the evidence of the
practices; the policies and procedures that the bank (or affiliate, as
applicable) has in place to prevent the practices; any corrective
action that the bank (or affiliate, as applicable) has taken or has
committed to take, including voluntary corrective action resulting from
self-assessment; and any other relevant information.

0
5. In Appendix A to part 345, revise paragraph (d) to read as follows:

Appendix A to Part 345--Ratings

* * * * *
(d) Banks evaluated under the small bank performance standards--
(1) Lending test ratings.
(i) Eligibility for a satisfactory lending test rating. The FDIC
rates a small bank's lending performance ``satisfactory'' if, in
general, the bank demonstrates:
(A) A reasonable loan-to-deposit ratio (considering seasonal
variations) given the bank's size, financial condition, the credit
needs of its assessment area(s), and taking into account, as
appropriate, other lending-related activities such as loan
originations for sale to the secondary markets and community
development loans and qualified investments;
(B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
(C) A distribution of loans to and, as appropriate, other
lending-related activities for individuals of different income
levels (including low- and moderate-income individuals) and
businesses and farms of different sizes that is reasonable given the
demographics of the bank's assessment area(s);
(D) A record of taking appropriate action, when warranted, in
response to written complaints, if any, about the bank's performance
in helping to meet the credit needs of its assessment area(s); and
(E) A reasonable geographic distribution of loans given the
bank's assessment area(s).
(ii) Eligibility for an ``outstanding'' lending test rating. A
small bank that meets each of the standards for a ``satisfactory''
rating under this paragraph and exceeds some or all of those
standards may warrant consideration for a lending test rating of
``outstanding.''
(iii) Needs to improve or substantial noncompliance ratings. A
small bank may also receive a lending test rating of ``needs to
improve'' or ``substantial noncompliance'' depending on the degree
to which its performance has failed to meet the standard for a
``satisfactory'' rating.
(2) Community development test ratings for intermediate small
banks--(i) Eligibility for a satisfactory community development test
rating. The FDIC rates an intermediate small bank's community
development performance ``satisfactory'' if the bank demonstrates
adequate responsiveness to the community development needs of its
assessment area(s) through community development loans, qualified
investments, and community development services. The adequacy of the
bank's response will depend on its capacity for such community
development activities, its assessment area's need for such
community development activities, and the availability of such
opportunities for community development in the bank's assessment
area(s).
(ii) Eligibility for an outstanding community development test
rating. The FDIC rates an intermediate small bank's community
development performance ``outstanding'' if the bank demonstrates
excellent responsiveness to community development needs in its
assessment area(s) through community development loans, qualified
investments, and community development services, as appropriate,
considering the bank's capacity and the need and availability of
such opportunities for community development in the bank's
assessment area(s).
(iii) Needs to improve or substantial noncompliance ratings. An
intermediate small bank may also receive a community development
test rating of ``needs to improve'' or ``substantial noncompliance''
depending on the degree to which its performance has failed to meet
the standards for a ``satisfactory'' rating.
(3) Overall rating--(i) Eligibility for a satisfactory overall
rating. No intermediate small bank may receive an assigned overall
rating of ``satisfactory'' unless it receives a rating of at least
``satisfactory'' on both the lending test and the community
development test.
(ii) Eligibility for an outstanding overall rating. (A) An
intermediate small bank that receives an ``outstanding'' rating on
one test and at least ``satisfactory'' on the other test may receive
an assigned overall rating of ``outstanding.''
(B) A small bank that is not an intermediate small bank that
meets each of the standards for a ``satisfactory'' rating under the
lending test and exceeds some or all of those standards may warrant
consideration for an overall rating of ``outstanding.'' In assessing
whether a bank's performance is ``outstanding,'' the FDIC considers
the extent to which the bank exceeds each of the performance
standards for a ``satisfactory'' rating and its performance in
making qualified investments and its performance in providing
branches and other services and delivery systems that enhance credit
availability in its assessment area(s).
(iii) Needs to improve or substantial noncompliance overall
ratings. A small bank may also receive a rating of ``needs to
improve'' or ``substantial noncompliance'' depending on the degree
to which its performance has failed to meet the standards for a
``satisfactory'' rating.
* * * * *

Dated: July 19, 2005.
Julie L. Williams,
Acting Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, July 26, 2005.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington, DC, this 19th day of July, 2005.

By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 05-15227 Filed 8-1-05; 8:45 am]

BILLING CODE 4810-33-P



Last Updated 12/29/2006 Regs@fdic.gov