[Federal Register: November 10, 2005 (Volume 70, Number 217)]
[Notices]
[Page 68450-68456]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10no05-127]
=======================================================================
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
[Docket No. 05-17]
FEDERAL RESERVE SYSTEM
[Docket No. OP-1240]
FEDERAL DEPOSIT INSURANCE CORPORATION
RIN 3064-AC97
Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment; Notice
AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve System (Board); Federal
Deposit Insurance Corporation (FDIC).
ACTION: Notice and request for comment.
-----------------------------------------------------------------------
SUMMARY: This proposal would revise guidance of the staffs of the OCC,
Board, and FDIC (collectively,
``the agencies'') relating to the
Community Reinvestment Act (``the Act'' or ``CRA'') to address topics
related to the revisions the agencies made to their regulations that
implement the CRA. After reviewing comments on this proposal, these
questions and answers will be added to the Interagency Questions and
Answers, an existing document that contains informal staff guidance for
examiners and other agency personnel, financial institutions, and the
public. Public comment is invited on the proposed guidance, as well as
any other community reinvestment issues.
DATES: Comments on the proposed questions and answers are requested by
January 9, 2006.
ADDRESSES: Comments should be directed to:
OCC: You should include OCC and Docket Number 05-17 in your
comment. You may submit comments by any of the following methods:
* Federal eRulemaking Portal:
<a href="http://www.regulations.gov">
http://www.regulations.gov</a>.
Follow the instructions for submitting comments.
* OCC Web Site:
<a href="http://www.occ.treas.gov">
http://www.occ.treas.gov</a>. Click on ``Contact
the OCC,'' scroll down and click on ``Comments on Proposed
Regulations.''
* E-mail Address: <a href="mailto:regs.comments@occ.treas.gov">
regs.comments@occ.treas.gov</a>.
* Fax: (202) 874-4448.
* Mail: Office of the Comptroller of the Currency, 250 E
Street, SW., Mail Stop 1-5, Washington, DC 20219.
* Hand Delivery/Courier: 250 E Street, SW., Attn: Public
Information Room, Mail Stop 1-5, Washington, DC 20219.
Instructions: All submissions received must include the
agency name
(OCC) and docket number for this notice. In general, the OCC will enter
all comments received into the docket without change, including any
business or personal information that you provide. You may review
comments and other related materials by any of the following methods:
* Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC's Public Information Room, 250 E
Street, SW., Washington, DC. You can make an appointment to inspect
comments by calling (202) 874-5043.
* Viewing Comments Electronically: You may request e-mail or
CD-ROM copies of comments that the OCC has received by contacting the
OCC's Public Information Room at
<a href="mailto:regs.comments@occ.treas.gov">regs.comments@occ.treas.gov</a>.
* Docket: You may also request available background
documents and project summaries using the methods described above.
Board: You may submit comments, identified by Docket No.
OP-1240,
by any of the following methods:
* Agency Web site:
<a href="http://www.federalreserve.gov">
http://www.federalreserve.gov</a> Follow the instructions for submitting
comments at
<a href="http://www.federalreserve.gov/">
http://www.federalreserve.gov/</a>.
.
* Federal eRulemaking Portal:
<a href="http://www.regulations.gov">
http://www.regulations.gov</a>.
Follow the instructions for submitting comments.
* E-mail: <a href="mailto:regs.comments@federalreserve.gov">
regs.comments@federalreserve.gov</a>. Include docket
number in the subject line of the message.
* Fax: 202/452-3819 or 202/452-3102.
* Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site
at
<a href="http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm">
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm</a> as
submitted, except as necessary for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information.
Public comments may also be viewed electronically or in paper
in
Room MP-500 of the Board's Martin Building (20th and C Streets, NW.)
between 9 a.m. and 5 p.m. on weekdays.
FDIC: You may submit comments, identified by
RIN number 3064-AC97
by any of the following methods:
* Agency Web site:
<a href="/regulations/laws/federal/propose.html">
http://www<b>.</b>fdic.gov/regulations/laws/federal/propose.html</a>.
Follow instructions for submitting comments on
the Agency Web site.
* E-mail: <a href="mailto:Comments@FDIC.gov">Comments@FDIC.gov</a>.
Include the RIN number in the
subject line of the message.
* Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.
* Hand Delivery/Courier: Guard station at the rear of the
550 17th Street Building (located on F Street) on business days between
7 a.m. and 5 p.m.
Instructions: All submissions received must include the
agency name
and RIN number. All comments received will be posted without change to
<a href="/regulations/laws/federal/propose.html">
http://www.fdic.gov/regulations/laws/federal/propose.html</a>
including any
personal information provided.
FOR FURTHER INFORMATION CONTACT:
OCC: Margaret Hesse, Special Counsel, Community and Consumer
Law
Division, (202) 874-5750; or Karen Tucker, National Bank Examiner,
Compliance Policy Division, (202) 874-4428, Office of the Comptroller
of the Currency, 250 E Street, SW., Washington, DC 20219.
Board: Anjanette M. Kichline, Supervisory Consumer Financial
Services Analyst, (202) 785-6054; Catherine M.J. Gates, Senior
Supervisory Consumer Financial Services Analyst, (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: Robert W.
Mooney, Chief, (202) 898-3911, or Pamela Freeman,
Policy Analyst, (202) 898-6568, CRA and Fair Lending Policy Section,
Division of Supervision and Consumer Protection; Richard M. Schwartz,
Counsel, Legal Division, (202) 898-7424; Susan van den Toorn, Counsel,
Legal Division, (202) 898-8707; Federal Deposit Insurance Corporation,
550 17th Street, NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
Background
On August 2, 2005, the OCC, Board, and FDIC
published in the
Federal
[[Page 68451]]
Register a joint final rule revising their Community Reinvestment Act
regulations (70 FR 44256). The joint final rule became effective
September 1, 2005.
The joint final rule addressed 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 exempted such banks from the large bank lending, investment,
and service tests, and made 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.
The joint final rule also revised the term ``community
development'' to include activities to revitalize and stabilize
distressed or underserved nonmetropolitan middle-income areas and
designated disaster areas. Finally, the rule adopted 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.
To help financial institutions meet their responsibilities
under
the CRA and to increase public understanding of the CRA regulations,
the staffs of the OCC, Board, FDIC, and Office of Thrift
Supervision
have previously published answers to the most frequently asked
questions about the community reinvestment regulations of the four
federal financial regulatory agencies. This guidance is intended to
provide informal staff guidance for use by examiners and other agency
personnel, financial institutions, and the public, and is supplemented
periodically. The staffs of the OCC, Board, and FDIC are
jointly
issuing these proposed Questions and Answers to provide additional
guidance specific to the new OCC, Board, and FDIC rules
issued on
August 2, 2005, that apply to their institutions.
Just as in the Interagency Questions and Answers currently in
effect (65 FR 36620 (July 12, 2001)), the proposed questions and
answers are grouped by the provision of the CRA regulations that they
discuss and are presented in the same order as the regulatory
provisions. The proposed questions and answers employ the same
abbreviated method to cite to the regulations that the agencies used in
the Interagency Questions and Answers. Because the regulations of the
three agencies are substantially identical, corresponding sections of
the different regulations usually bear the same suffix. Therefore, the
proposed questions and answers cite only to the suffix. For example,
the small bank performance standards for national banks appear at 12
CFR 25.26; for Federal Reserve System member banks supervised by the
Board, they appear at 12 CFR 228.26; and for nonmember state banks, at
12 CFR 345.26. Accordingly, the citation in this document would be to
Sec. -- .26. Each question is numbered using a system that consists of
the regulatory citation (as described above) and a number, connected by
a dash. For example, the first proposed question addressing Sec. --
--.12(g)(4) would be identified as Sec. ----.12(g)(4)-1.
As a result of technical changes made to the agencies'
regulations
(70 FR 15570 (March 28, 2005)) and the recent revisions mentioned
above, some of the numbering in the existing 2001 Interagency Questions
and Answers does not correspond to the appropriate sections of the
revised regulation. However, in the proposed questions and answers, if
a reference is made to an existing question and answer, the number of
the existing question and answer, as published in the 2001 Interagency
Questions and Answers, is given, even if the old reference does not
accurately describe the current provision in the regulations. When the
proposed questions and answers are adopted as final and the rest of the
questions and answers are updated to reflect the revisions to the
regulations made by the three agencies, as discussed above, the
references in the questions and answers will be updated.
Proposed Questions and Answers
Because the agencies made several significant revisions to
the
regulations, new Interagency Questions and Answers addressing those
revisions are necessary. Therefore, thirteen new questions and answers
addressing the new revisions are being published for comment.
Revised ``Community Development'' Definition
Of the thirteen proposed new questions and answers, seven
questions
and answers address the revised definition of ``community
development,'' which includes activities that revitalize or stabilize a
distressed or underserved nonmetropolitan middle-income geography or a
designated disaster area. First, the proposed guidance clarifies that
the revised definition of ``community development'' applies to all
banks, and not only to intermediate small banks. It also discusses what
is meant by a designated disaster area. Disaster areas are designated
by Federal agencies or States, and these designations are made public.
Therefore, the agencies do not intend to maintain a separate list of
all government-designated disaster areas.
The guidance also proposes a one-year ``lag period'' during
which a
bank may continue to receive consideration for activities in a disaster
area for which the Federal or state designation has expired. The lag
will help promote investments that may take an extended period of time
to arrange and that have extended periods of duration that may continue
to provide meaningful benefits to the community after the government
designation has ended. During the proposed lag period, community
development activities will continue to receive consideration just as
they would have if the area were still designated as a disaster area.
Comment is specifically requested on the appropriateness of a one-year
lag period. Is one extra year generally long enough for a bank to
finish the preparations for a community development project investment
or loan, the development of which was commenced while the area was
still a designated disaster area? Should a longer or shorter period be
selected? If so, how long and why?
Comment is also requested on the appropriate description of a
disaster designation's duration. The proposed guidance would recognize
the revitalization and stabilization efforts in disaster areas during
such time that Federal, State, or local governments have determined
that the area continues to be affected by the disaster event, and
provides a one-year period after the expiration of the disaster
designation in which revitalization and stabilization activities
targeted to those areas will receive favorable recognition. The
agencies specifically seek comment on this aspect of the proposal. In
particular, the agencies seek comment on whether the period starting
with ``designation'' and ending with ``expiration'' of the designation
is the most appropriate and meaningful way to describe the duration of
the effect of the disaster for CRA purposes. Or, should the guidance be
more broadly worded to reflect other relevant governmental measures of
the duration of a disaster event? For example, should the guidance also
refer to ``periods of assistance,'' ``registration periods,'' or other
relevant timeframes?
The proposed guidance next explains that all revitalization
activities in designated disaster areas are not considered equally--
those that are most responsive to community needs, including the needs
of low- or moderate-income individuals, may be given more weight than
other revitalization and stabilization activities
[[Page 68452]]
in designated disaster areas. Bank activities to revitalize and
stabilize a designated disaster area will be evaluated, as appropriate,
based on the particular circumstances and needs of the area. The
guidance also includes a statement regarding loans to individuals
displaced by a disaster and refers to relevant existing guidance.
The proposed guidance also describes the criteria that the
agencies
use to identify distressed or underserved nonmetropolitan middle-income
geographies and states that the list of such geographies will be
reviewed and updated annually. Additional detail about the data sources
used in developing the list of distressed and underserved geographies
will be posted on the FFIEC Web site (<a href="http://www.ffiec.gov">http://www.ffiec.gov</a>)
with the
list.
Similar to the ``lag period'' proposed in connection with
activities in designated disaster areas, a one-year lag period also is
proposed during which a bank may continue to receive consideration for
activities in a distressed or underserved middle-income nonmetropolitan
area that has been removed from the list. Because some community
development projects take an extended amount of time to arrange and
fund, the staffs of the agencies believe that it is important to lessen
the impact on a bank's investment planning and implementation that will
occur once a distressed or underserved geography has been removed from
the designated list. During the proposed lag period, community
development activities will continue to receive consideration just as
they would have if the geography were still designated as a distressed
or underserved area. Comment is specifically requested on the
appropriateness of a one-year lag period. Is one extra year generally
long enough for a bank to finish the preparations for a community
development project investment or loan, the development of which was
commenced while the geography was a designated distressed or
underserved geography? Should a longer period be selected? If so, how
long and why?
The proposed guidance also clarifies that revitalization and
stabilization activities in middle-income nonmetropolitan distressed
geographies are evaluated differently than those in middle-income
nonmetropolitan underserved geographies. Generally, a revitalization or
stabilization activity in a distressed middle-income nonmetropolitan
geography that helps to attract and retain businesses and residents or
is part of a bona fide revitalization or stabilization plan will
receive positive consideration. In contrast, in an underserved middle-
income nonmetropolitan area, revitalization or stabilization activities
are activities that facilitate the construction, expansion,
improvement, maintenance, or operation of essential infrastructure or
facilities for health services, education, public safety, public
services, industrial parks, or affordable housing. These activities
generally will be considered to meet essential community needs and
qualify for consideration as a community development activity, so long
as the infrastructure, facility, or affordable housing serves low- and
moderate-income individuals.
Finally, the proposed guidance explains when housing for
middle-
and upper-income persons in distressed or underserved nonmetropolitan
middle-income geographies or designated disaster areas may be
considered as a community development activity.
Community development test applicable to intermediate small banks
Three questions and answers are proposed to address the
community
development test applicable to intermediate small banks and how these
banks will be evaluated under it. First, the proposed guidance
discusses what examiners will consider when they review the
responsiveness of an intermediate small bank's community development
activities to the community development needs of the area. Next, the
proposed guidance addresses how the community development test for
intermediate small banks will be applied flexibly so that banks can
address community development needs in their assessment areas in the
most responsive manner. Finally, the proposed guidance includes a
question and answer that explains what examiners will consider when
evaluating the provision of community development services by an
intermediate small bank in the community development test.
Treatment of Small Banks' Affiliates' Activities
The proposed guidance clarifies that any small bank
(including an
intermediate small bank) may request that activities of an affiliate in
the small bank's assessment area(s) be considered in its performance
evaluation. Those activities will be considered in the small bank's
performance evaluation subject to the same constraints that apply to
large institutions' affiliate activities, including that the activities
have not also been considered in the CRA evaluation of another
institution.
Small Bank Asset Threshold Adjustments
One question and answer is proposed that explains that the
asset
size thresholds for ``small bank'' and ``intermediate small bank'' will
be adjusted annually based on changes to the Consumer Price Index. Any
changes in the asset size thresholds will be published in the Federal
Register.
Consideration of Prior-Period Qualified Investments
A new question and answer is proposed that would apply to
banks of
all sizes. It explains how examiners evaluate qualified investments
that were made during the prior evaluation period but that are still
outstanding during the current evaluation period.
Revisions to Existing Guidance
Three revisions to existing questions and answers are also
proposed. The first proposed revision adds a bullet to the existing
question and answer that provides examples of community development
services (existing Sec. Sec. ----.12(j) & 563e.12(i)-3). The new
bullet clarifies that the provision of financial services to low- and
moderate-income individuals through branches and other facilities
located in low- and moderate-income areas is a community development
service, unless the provision of such services has been considered in
the evaluation of a bank's retail banking services under the service
test.
The second proposed revision is consistent with guidance the
agencies provided in a letter responding to a question from a member of
Congress. This revision would add another new bullet to the existing
question and answer providing examples of community development
services (existing Sec. Sec. ----.12(j) & 563e.12(i)-3) that states
that a community development service may include ``providing
international remittances services that increase access to financial
services by low- and moderate-income persons (for example, by offering
reasonably priced international remittances services in connection with
a low-cost account).''
The last proposed revision would revise the existing question
and
answer that provides examples of qualified investments (existing
Sec. Sec. ----.12(s) & 563e.12(r)-4) to also include banks'
investments in Rural Business Investment Companies (RBICs). The Rural
Business Investment Program (RBIP), which is a joint initiative between
the U.S. Small Business Administration and the U.S. Department
[[Page 68453]]
of Agriculture, is intended to promote economic development by
financing small businesses located primarily in rural areas.
General Comments
Public comment is invited on the new and revised questions
and
answers. Public comment is also invited on a continuing basis on any
issues raised by the CRA and the Interagency Questions and Answers. If,
after reading this proposed guidance and the existing Interagency
Questions and Answers, banks, examiners, community organizations, or
other interested parties have unanswered questions or comments about
the agencies' community reinvestment regulations, they should submit
them to the agencies. Staffs of the agencies will consider addressing
such questions in future revisions to the Interagency Questions and
Answers.
Solicitation of Comments Regarding the Use of ``Plain Language''
Section 722 of the Gramm-Leach-Bliley Act of 1999, 12 U.S.C.
4809,
requires the agencies to use ``plain language'' in all proposed and
final rules published after January 1, 2000. Although this proposed
guidance is not a proposed rule, comments are nevertheless invited on
whether the proposed interagency questions and answers are stated
clearly and effectively organized, and how the guidance might be
revised to make it easier to read.
Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)
The SBREFA requires an agency, for each rule for which it
prepares
a final regulatory flexibility analysis, to publish one or more
compliance guides to help small entities understand how to comply with
the rule.
Pursuant to section 605(b) of the Regulatory Flexibility Act,
the
OCC and FDIC certified that their proposed CRA rule would
not have a
significant economic impact on a substantial number of small entities
and invited comments on that determination. The Board did not so
certify, and requested comments in several areas. See 70 FR 12148,
12154 (March 11, 2005). In connection with the joint final rule, the
FDIC and OCC certified that the joint final rule would not
have a
significant impact on a substantial number of small entities. In
response to public comments it received, the Board prepared a final
regulatory flexibility analysis and described how the final rule
minimizes the economic impact on small entities by making the twelve
affected state member banks eligible for the streamlined CRA process.
See 70 FR at 44264-65 (August 2, 2005).
In accordance with section 212 of the SBREFA and the
agencies'
continuing efforts to provide clear, understandable regulations, staffs
of the agencies have compiled the Interagency Questions and Answers.
The Interagency Questions and Answers serve the same purpose as the
compliance guide described in the SBREFA by providing guidance on a
variety of issues of particular concern to small banks.
The text of the proposed Interagency Questions and Answers
Regarding Community Reinvestment follows:
Sec. ----.12(g)(4) Activities That Revitalize or Stabilize--
Sec. ----.12(g)(4)-1 (proposed): Is the revised definition of
community development, effective September 1, 2005, applicable to all
banks or only to intermediate small banks?
A1 (proposed): The revised definition of community
development is
applicable to all banks.
Sec. ----.12(g)(4)-2 (proposed): When do activities that provide
housing for middle-income and upper-income persons qualify for
favorable consideration as community development activities when they
help to revitalize or stabilize designated distressed or underserved
middle-income nonmetropolitan geographies or designated disaster areas?
A2 (proposed): A bank activity that provides housing, but not
necessarily for low- or moderate-income individuals, may qualify as an
activity that revitalizes or stabilizes a designated distressed
nonmetropolitan middle-income geography or a designated disaster area
if the housing helps to revitalize or stabilize the community by
attracting and retaining businesses and residents, providing benefits
to the entire community, including to low- and moderate-income
individuals and neighborhoods. For example, a bank activity that
provides housing for middle- or upper-income individuals in a
designated distressed nonmetropolitan, middle-income geography or
disaster area that is 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, including to low-
and moderate-income individuals, qualifies as community development.
See existing Q&As Sec. Sec. ----.12(h)(4) & 563e.12(g)(4)-1 and
Sec. Sec. ----.12(i) & 563e.12(h)-4.
In underserved middle-income nonmetropolitan geographies,
activities that provide housing for middle- and upper-income
individuals may also qualify as activities that revitalize or stabilize
such underserved areas if the activities also provide housing for low-
or moderate-income individuals. For example, a loan to build a mixed-
income housing development that provides housing for middle- and upper-
income individuals in an underserved, middle-income, nonmetropolitan
geography would receive positive consideration if it also provides
housing for low- or moderate-income individuals.
Sec. ----.12(g)(4)(ii) Activities That Revitalize or Stabilize
Designated Disaster Areas
Sec. ----.12(g)(4)(ii)-1 (proposed): What is a ``designated disaster
area''?
A1 (proposed): A ``designated disaster area'' is a disaster
area
designated by federal or state government. Such designations include,
for example, Major Disaster Declarations administered by the Federal
Emergency Management Agency (<a href="http://www.fema.gov">http://www.fema.gov</a>).
When a disaster area's designation expires pursuant to the
applicable law under which it was declared, the agencies will adopt a
one-year ``lag period.'' This lag period will be in effect for the
twelve months immediately following the expiration of the disaster area
declaration. Revitalization or stabilization activities undertaken
during the lag period will receive consideration as community
development activities if they would have been considered to have a
primary purpose of community development if the area in which they were
located were still designated as a disaster area.
Sec. ----.12(g)(4)(ii)-2 (proposed): How are revitalization activities
in a designated disaster area considered?
A2 (proposed): A bank's revitalization or stabilization
activities
in a designated disaster area will be evaluated in the same way such
activities are evaluated in a low- or moderate-income area or in a
nonmetropolitan middle-income distressed geography. Examiners will
determine whether the activities have a primary purpose of community
development by helping to attract and retain residents and businesses
(including by providing jobs) or are part of a bona fide plan to
revitalize or stabilize the geography. The agencies will consider all
activities that revitalize or stabilize a designated disaster area,
[[Page 68454]]
but will give greater weight to those activities that are most
responsive to community needs, including those of low- or moderate-
income individuals or neighborhoods. (Investments in entities that
provide community services for, and direct loans and financial services
provided to, individuals in designated disaster areas and to
individuals who are displaced by disasters also receive consideration
under the CRA (see, e.g., existing Q&As Sec. ----.12(j) & 563e.12(i)-
3; Sec. ----.12(s) & 563e.12(r)-4; Sec. ----.22(b)(2) & (3)-4;
Sec.
----.22(b)(2) & (3)-5; and Sec. ----.24(d)(3)-1)).
Sec. ----.12(g)(4)(iii) Activities That Revitalize or Stablize
Distressed or Underserved Nonmetropolitan Middle-Income Geographies
Sec. ----.12(g)(4)(iii)-1 (proposed): What criteria are used to
identify distressed or underserved nonmetropolitan, middle-income
geographies?
A1 (proposed): Eligible nonmetropolitan middle-income
geographies
are those designated by the agencies as being in distress or that could
have difficulty meeting essential community needs (underserved). A
particular geography could be designated as both distressed and
underserved.
A middle-income, nonmetropolitan geography will be designated
as
distressed if it is in a county that meets one or more of the following
triggers: (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 five percent or more over
the five-year period preceding the most recent census.
A middle-income, nonmetropolitan geography will be designated
as
underserved 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 these
designations the ``urban influence codes,'' numbered ``7,'' ``10,''
``11,'' and ``12,'' maintained by the Economic Research Service of the
United States Department of Agriculture.
The agencies will publish data source information along with
the
list of eligible rural census tracts on the Federal Financial
Institutions Examination Council Web site (<a href="http://www.ffiec.gov">http://www.ffiec.gov</a>).
Sec. ----.12(g)(4)(iii)-2 (proposed): How often will
the agencies
update the list of designated distressed and underserved middle-income,
nonmetropolitan geographies?
A2 (proposed): The agencies will review and update the list
annually. The list will be published on the Federal Financial
Institutions Examination Council Web site (<a href="http://www.ffiec.gov">http://www.ffiec.gov</a>).
To the extent that changes to the designated census tracts
occur,
the agencies will adopt a one-year ``lag period.'' This lag period will
be in effect for the twelve months immediately following the date when
a census tract that was designated as distressed or underserved is
removed from the designated list. Revitalization or stabilization
activities undertaken during the lag period will receive consideration
as community development activities if they would have been considered
to have a primary purpose of community development if the census tract
in which they were located were still designated as distressed or
underserved.
Sec. ----.12(g)(4)(iii)-3 (proposed): How are
``revitalization or
stabilization'' activities in middle-income, nonmetropolitan,
distressed geographies and in middle-income, nonmetropolitan,
underserved geographies evaluated?
A3 (proposed): A bank's revitalization or stabilization
activities
in a middle-income, nonmetropolitan, distressed geography will be
evaluated in the same way such activities are evaluated in a low- or
moderate-income area. For activities in a middle-income,
nonmetropolitan, distressed geography, examiners will determine whether
the activities have a primary purpose of community development by
helping to attract and retain residents and businesses (including by
providing jobs) or are part of a bona fide plan to revitalize or
stabilize the geography. The activities must have a long-term direct
benefit to the entire community, including low- and moderate-income
individuals and neighborhoods. See existing Q&As Sec. Sec. --
--.12(h)(4) & 563e.12(g)(4)-1 and Sec. Sec. ----.12(i) and 563e.12(h)-
4.
In a middle-income, nonmetropolitan, underserved geography,
however, bank activities that facilitate the 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 and qualify for
consideration as a community development activity, so long as the
infrastructure, facility, or affordable housing serves low- and
moderate-income individuals. Examples of the types of projects that
meet essential community needs and serve low- or moderate-income
individuals could be a new or expanded hospital that serves the entire
county, including low- and moderate-income residents; an industrial
park for businesses whose employees include low- or moderate-income
individuals; a new or rehabilitated sewer line that serves community
residents, including low- or moderate-income residents; a mixed-income
housing development that includes affordable housing for low- and
moderate-income families; or a renovated elementary school that serves
children from the community, including children from low- and moderate-
income families. Other bank activities in the area, such as financing a
project to build a sewer line spur to connect services to a housing
development affordable only to middle- and upper-income residents,
generally would not qualify for revitalization or stabilization
consideration in geographies designated as underserved. However, if an
underserved geography is also designated as distressed, such activities
are considered to revitalize and stabilize the geography if the
activity helps to attract and retain residents and businesses, or are
part of a bona fide revitalization or stabilization plan as further
explained in existing Q&A Sec. Sec. ----.12(h)(4) & 563e.12(g)(4)-1.
Sec. ----.12(i) Community Development Service
Sec. ----.12(i)-3 (existing Q&A Sec. ----.12(j) & 563e.12(i)-3
proposed revision): What are examples of community development
services?
A3 (proposed revision): Examples of community development
services
include, but are not limited to, the following:
* Providing financial services to low- and moderate-income
individuals through branches and other facilities located in low- and
moderate-income areas, unless the provision of such services has been
considered in the evaluation of a bank's retail banking services under
Sec. ----.24(d);
* Providing technical assistance on financial matters to
nonprofit, tribal or government organizations serving low- and
moderate-income housing or economic revitalization and development
needs;
* Providing technical assistance on financial matters to
small businesses or community development organizations, including
organizations and individuals
[[Page 68455]]
who apply for loans or grants under the Federal Home Loan Banks'
Affordable Housing Program;
* Lending employees to provide financial services for
organizations facilitating affordable housing construction and
rehabilitation or development of affordable housing;
* Providing credit counseling, home-buyer and home-
maintenance counseling, financial planning or other financial services
education to promote community development and affordable housing;
* Establishing school savings programs and developing or
teaching financial education curricula for low- or moderate-income
individuals;
* Providing electronic benefits transfer and point of sale
terminal systems to improve access to financial services, such as by
decreasing costs, for low- or moderate-income individuals;
* Providing international remittances services that increase
access to financial services by low- and moderate-income persons (for
example, by offering reasonably priced international remittances
services in connection with a low-cost account); and
* Providing other financial services with the primary
purpose of community development, such as low-cost bank accounts,
including ``Electronic Transfer Accounts'' provided pursuant to the
Debt Collection Improvement Act of 1996, or free government check
cashing that increases access to financial services for low- or
moderate-income individuals.
Examples of technical assistance activities that might be
provided
to community development organizations include:
* Serving on a loan review committee;
* Developing loan application and underwriting standards;
* Developing loan processing systems;
* Developing secondary market vehicles or programs;
* Assisting in marketing financial services, including
development of advertising and promotions, publications, workshops and
conferences;
* Furnishing financial services training for staff and
management;
* Contributing accounting/bookkeeping services; and
* Assisting in fund raising, including soliciting or
arranging investments.
Sec. ----.12(t) Qualified Investment
Sec. ----.12(t)-1 (proposed): When evaluating a
qualified
investment, what consideration will be given for prior-period
investments?
A1 (proposed): When evaluating a bank's qualified investment
record, examiners will consider investments that were made prior to the
current examination, but that are still outstanding. Qualitative
factors will affect the weighting given to both current period and
outstanding prior-period qualified investments. For example, a prior-
period outstanding investment with a multi-year impact that addresses
assessment area community development needs may receive more
consideration than a current period investment of a comparable amount
that is less responsive to area community development needs.
Sec. ----.12(t)-4 (existing Q&A Sec. Sec.
----.12(s) &
563e.12(r)-4 proposed revision): What are examples of qualified
investments?
A4 (proposed revision). Examples of qualified investments
include,
but are not limited to, investments, grants, deposits or shares in or
to:
* Financial intermediaries (including, Community Development
Financial Institutions (CDFIs), Community Development Corporations
(CDCs), minority- and women-owned financial institutions, community
loan funds, and low-income or community development credit unions) that
primarily lend or facilitate lending in low- or moderate-income areas
or to low- and moderate-income individuals in order to promote
community development, such as a CDFI that promotes economic
development on an Indian reservation;
* Organizations engaged in affordable housing rehabilitation
and construction, including multifamily rental housing;
* Organizations, including for example, Small Business
Investment Companies (SBICs), specialized SBICs, and Rural Business
Investment Companies (RBICs), that promote economic development by
financing small businesses;
* Facilities that promote community development in low- and
moderate-income areas for low- and moderate-income individuals, such as
youth programs, homeless centers, soup kitchens, health care
facilities, battered women's centers, and alcohol and drug recovery
centers;
* Projects eligible for low-income housing tax credits;
* State and municipal obligations, such as revenue bonds,
that specifically support affordable housing or other community
development;
* Not-for-profit organizations serving low- and moderate-
income housing or other community development needs, such as counseling
for credit, home-ownership, home maintenance, and other financial
services education; and
* Organizations supporting activities essential to the
capacity of low- and moderate-income individuals or geographies to
utilize credit or to sustain economic development, such as, for
example, day care operations and job training programs that enable
people to work.
Sec. ----.12(u)(2): Small Bank Adjustment
Sec. ----.12(u)(2)-1 (proposed): How often will the asset size
thresholds for small banks and intermediate small banks be changed, and
how will these adjustments be communicated?
A1 (proposed): The asset size thresholds for ``small bank''
and
``intermediate small bank'' will be adjusted annually based on changes
to the Consumer Price Index. More specifically, the dollar thresholds
will be adjusted annually 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. Any changes in the
asset size thresholds will be published in the Federal Register.
Sec. ----.26 Small Bank Performance Standards
Sec. ----.26-1 (proposed): When evaluating a small or intermediate
small bank's performance, will examiners consider, at the institution's
request, retail and community development loans, qualified investments,
or community development services originated or purchased by
affiliates?
A1 (proposed): Yes. However, a small institution that elects
to
have examiners consider affiliate activities must maintain sufficient
information that the examiners may evaluate these activities under the
appropriate performance criteria and ensure that the activities are not
claimed by another institution. The constraints applicable to affiliate
activities claimed by large institutions also apply to small and
intermediate small institutions. See existing Q&A Sec. ----.22(c)(2)
and related guidance provided to large institutions regarding affiliate
activities. Examiners will not include affiliate lending in calculating
the percentage of loans and, as appropriate, other lending-related
activities located in a bank's assessment area.
[[Page 68456]]
Sec. ----.26(c) Intermediate Small Bank Community Development Test
Sec. ----.26(c)-1 (proposed): How will the community development test
be applied flexibly for intermediate small banks?
A1 (proposed): Generally, intermediate small banks engage in
a
combination of community development loans, qualified investments, and
community development services. A bank may not simply ignore one or
more of these categories of community development, nor do the
regulations prescribe a required threshold for community development
loans, qualified investments, and community development services.
Instead, based on the bank's assessment of community development needs
in its assessment area(s), it may engage in different categories of
community development activities that are responsive to those needs and
consistent with the bank's capacity.
An intermediate small bank has the flexibility to allocate
its
resources among community development loans, qualified investments, and
community development services in amounts that it reasonably determines
are most responsive to community development needs and opportunities.
Appropriate levels of each of these activities would depend on the
capacity and business strategy of the bank, community needs, and number
and types of opportunities for community development.
Sec. ----.26(c)(3) Community Development Services under Intermediate
Small Bank Community Development Test
Sec. ----.26(c)(3)-1 (proposed): What will examiners consider when
evaluating the provision of community development services by an
intermediate small bank?
A1 (proposed): Examiners will consider not only the types of
services provided to benefit low- and moderate-income individuals, 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 individuals, including through branches and other
facilities located in low- and moderate-income areas.
Sec. ----.26(c)(4) Responsiveness to Community Development Needs under
Intermediate Small Bank Community Development Test
Sec. ----.26(c)(4)-1 (proposed): When evaluating an Intermediate Small
Bank's community development record, what will examiners consider when
reviewing the responsiveness of community development lending,
qualified investments, and community development services to the
community development needs of the area?
A1 (proposed): When evaluating an Intermediate Small Bank's
community development record, examiners will consider not only
quantitative measures of performance, such as the number and amount of
community development loans, qualified investments, and community
development services, but also qualitative aspects of performance. In
particular, examiners will evaluate the responsiveness of the bank's
community development activities in light of the bank's capacity,
business strategy, the needs of the community, and the number and types
of opportunities for each type of community development activity (its
performance context). Examiners also will consider the results of any
assessment by the institution of community development needs, and how
the bank's activities respond to those needs.
An evaluation of the degree of responsiveness considers the
following factors: the volume, mix, and qualitative aspects of
community development loans, qualified investments, and community
development services. Consideration of the qualitative aspects of
performance recognizes that community development activities sometimes
require special expertise or effort on the part of the institution or
provide a benefit to the community that would not otherwise be made
available. (However, ``innovativeness'' and ``complexity,'' factors
examiners consider when evaluating a large bank under the lending,
investment, and service tests, are not criteria in the intermediate
small banks' community development test.) In some cases, a smaller loan
may have more qualitative benefit to a community than a larger loan.
Activities are considered particularly responsive to community
development needs if they benefit low- and moderate-income individuals
in low- or moderate-income geographies, designated disaster areas, or
distressed or underserved middle-income nonmetropolitan geographies.
Activities are also considered particularly responsive to community
development needs if they benefit low- or moderate-income geographies.
This concludes the text of the proposed Interagency Questions
and
Answers Regarding Community Reinvestment.
Dated: October 31, 2005.
John C. Dugan,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, November 4, 2005.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington, DC, this third day of November, 2005.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 05-22468 Filed 11-9-05; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P