Federal Deposit
Insurance Corporation

The FDIC's Board of Directors has approved a final rule implementing the Community Reinvestment Act (CRA). The Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Office of Thrift Supervision have approved parallel regulations for the institutions they supervise. The joint final rule largely retains the principles and structure of the proposals issued in December 1993 and October 1994. The agencies modified some details in response to issues raised in comment letters and agency concerns.

The new CRA regulation replaces the 12 assessment factors contained in the old rule with a more performance-based evaluation process to assess whether financial institutions are meeting the credit needs of their communities, including low- and moderate-income neighborhoods. The new rule establishes different tests for large and small institutions, as well as for retail and wholesale or limited purpose banks. It also gives all banks and thrifts the option of being evaluated on the basis of a "strategic plan" designed by each institution and approved by its federal regulator. The new rule reduces regulatory burdens (particularly for small institutions), eliminates a number of existing documentation requirements and provides additional flexibility without compromising safety and soundness standards. More information on these reduced regulatory burdens is included in the attached Executive Summary.

Continuing the interagency effort that led to the development of the final rule, the regulators are working jointly on examination and other procedures to implement the new rule. Information about these procedures will be distributed to institutions when they are final. The new rule will be phased in over a two-year period, beginning July 1, 1995. Until the applicable test is phased in, institutions will continue to be examined under the old CRA regulations.

In a related development, the Federal Reserve Board also approved changes to Regulation C, which implements the Home Mortgage Disclosure Act. Regulation C was revised to conform to the new CRA regulation.

A copy of the Federal Register notice containing the new CRA regulations for all the agencies and the Federal Reserve Board's amendment to Regulation C is enclosed. Your attention is directed in particular to the preamble to the new CRA rules (pages 22156-22178), the FDIC's regulation (pages 22201-22212), and the revised Regulation C (pages 22223-22225). The attached Executive Summary from the FDIC outlines how and when different types of institutions will be affected.

Questions about the final rule should be directed to your Regional Office of the FDIC personnel listed on page 22156 of the attached notice.

Definition:        A small institution is a bank or thrift that, as of                       December 31 of either of the two prior calendar years,
                   had assets of less than $250 million and:

                   (1)  Was independent, or

                   (2)  Was an affiliate of a holding company that, as of
                        December 31 of either of the two prior calendar
                        years, had total banking and thrift assets of less
                        than $1 billion.

Evaluation:        Small banks will be evaluated under a streamlined                       examination process that emphasizes lending activities.

Documentation:     There are no new data collection or reporting                             requirements for small banks unless the institution
                   chooses to be evaluated under the test for large
                   institutions.

Definition:        Large retail institutions are banks and thrifts that                   do not meet the definition of a small bank (above) and
                   have not requested and received designation as a
                   wholesale or limited purpose bank (see next page).

Evaluation:        Large retail institutions have the option to be                          evaluated under one of two tests:

                   (1)  A three-part test evaluating the institution's
                        lending, service, and investment performance, with
                        emphasis on low- and moderate-income people and
                        areas; or

                   (2)  A "strategic plan" designed by the institution with
                        community involvement and approved by the
                        appropriate federal financial supervisory agency.

Documentation:     Certain new data collection, reporting and disclosure                    requirements regarding small business and small farm
                   loans, mortgage loans outside Metropolitan Statistical
                   Areas, and community development loans.  There also are
                   optional data requirements for consumer loans, affiliate
                   lending and lending by a consortium or third party.

Definition:        Two types of institutions that can qualify:             

                   (1)  "Wholesale banks," which are financial institutions
                        that are not in the business of extending home
                        mortgage, small business, small farm, or consumer
                        loans to retail customers.

                   (2)  "Limited purpose banks," which are financial
                        institutions that offer only a narrow product line,
                        such as credit cards, to a regional or broader
                        market.

                   The appropriate federal financial supervisory agency
                   must approve an institution's designation as a wholesale
                   or limited purpose bank.

 Evaluation:       Wholesale and limited purpose banks will be evaluated                   under a specially tailored community development test
                   that looks at an institution's record of meeting the
                   credit needs of its community through community
                   development lending, investments and services.  These
                   include initiatives that promote affordable housing,
                   loans to small businesses or small farms, or activities
                   that revitalize or stabilize low- or moderate-income
                   areas.

Documentation:     The data collection and reporting requirements that                     apply to wholesale and limited purpose banks are the
                   same as those that apply to large retail banks.

 July 1, 1995,     The following become effective:     

                    

                   New definitions;
    

                   The authority and purpose section of the regulation;
                 

                   The section on the effect of CRA performance on
                   applications; and
   

                   Transition rules.

January 1, 1996:   Small banks will begin to be evaluated under the new             
                   streamlined standards for performance.

January 1, 1996:   Banks that want to be examined under a strategic plan                  can begin to submit their plan for approval.

                   The new data collection provisions for large banks go
                   into effect.  Data for calendar year 1996 must be
                   reported by March 1, 1997.

                   Large retail banks may elect to be evaluated under the
                   lending, service, and investment tests if they can
                   provide the necessary data for evaluation under the
                   tests.

                   Banks also may elect to be evaluated under the community
                   development test if they provide the necessary data for
                   evaluation under the test and have requested and
                   received designation as wholesale or limited purpose
                   banks by the appropriate federal financial supervisory
                   agency.

July 1, 1997:      Remaining portions of the rule become effective.        

                   All institutions will begin to be evaluated under the
                   new CRA performance tests.