Each depositor insured to at least $250,000 per insured bank
Joint Advance Notice of Proposed Rulemaking
DEPARTMENT OF THE TREASURY
Office of the Comptroller of
12 CFR Part 25
[Docket No. 01-XX]
FEDERAL RESERVE SYSTEM
12 CFR Part 228
[Regulation BB; Docket No.
FEDERAL DEPOSIT INSURANCE
12 CFR Part 345
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 563e
[Docket No. XXXXX]
Community Reinvestment Act
Office of the Comptroller of the Currency, Treasury (OCC); Board of
Governors of the Federal Reserve System (Board); Federal Deposit Insurance
Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS).
Joint advance notice of proposed rulemaking.
OCC, Board, FDIC, and OTS (collectively, "we" or "the
agencies") are beginning a review of our Community Reinvestment Act
(CRA) regulations. This advance notice of proposed rulemaking (ANPR) seeks
public comment on a wide range of questions as part of our review. We also
welcome comments discussing other aspects of the CRA regulations and
suggesting ways to improve the efficacy of the regulations.
must be received by [INSERT DATE 90 DAYS AFTER DATE OF PUBLICATION IN THE
Please direct your comments to: Docket No. 01-XX, Communications Division,
Public Information Room, Mailstop 1-5, Office of the Comptroller of the
Currency, 250 E Street, SW., Washington, DC 20219. You can inspect and
photocopy all comments received at that address. In addition, you may send
comments by facsimile transmission to fax number (202) 874-4448, or by
electronic mail to <Board: Comments should refer to Docket No. R-XXXX
and should be mailed to Ms. Jennifer J. Johnson, Secretary, Board of
Governors of the Federal Reserve System, 20th Street and
Constitution Avenue, NW., Washington, DC 20551, or mailed electronically
Comments addressed to Ms. Johnson may also be delivered to the Board's
mailroom between 8:45 a.m. and 5:15 p.m., and to the security control room
outside those hours. Both the mailroom and the security control room are
accessible from the Eccles Building courtyard entrance, located on 20th
Street between Constitution Avenue and C Street, NW. Members of the public
may inspect comments in Room MP-500 of the Martin Building between 9:00
a.m. and 5:00 p.m. on weekdays.
Mail: Written comments should be addressed to Robert E. Feldman,
Executive Secretary, Attention: Comments/OES, Federal Deposit Insurance
Corporation, 550 17th Street, NW., Washington, DC 20429.
Comments may be hand delivered to the guard station at the rear of the 550
17th Street Building (located on F Street) on business days
between 7:00 a.m. and 5:00 p.m.
Send facsimile transmissions to fax number (202) 898-3838.
Comments may be submitted to the FDIC electronically over the Internet at
The FDIC has included a page on its web site to facilitate the submission
of electronic comments in response to this ANPR concerning the CRA
regulations (the EPC site). The EPC site provides an alternative to the
written letter and may be a more convenient way for you to submit your
comments or suggestions concerning the ANPR to the FDIC. If you submit
comments through the EPC site, your comments will receive the same
consideration that they would receive if submitted in hard copy to the
FDICís street address. Like comments or suggestions submitted in hard
copy to the FDICís street address, EPC site comments will be made
available in their entirety (including the commenterís name and address
if the commenter chooses to provide them) for public inspection. The FDIC,
however, will not use an individualís name or any other personal
identifier of an individual to retrieve records or information submitted
through the EPC site. You will be able to view the ANPR directly on the
EPC site and provide written comments and suggestions in the spaces
Comments may be inspected and photocopied in the FDIC Public Information
Center, Room 100, 801 17th Street, NW., Washington, DC 20429,
between 9:00 a.m. and 4:30 p.m. on business days.
Mail: Send comments to Regulation Comments, Chief Counselís
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC
20552, Attention Docket No. 2001-XX.
Hand deliver comments to the Guardís Desk, East Lobby Entrance, 1700 G
Street, NW., from 9:00 a.m. to 4:00 p.m. on business days, Attention:
Regulation Comments, Chief Counselís Office, Attention Docket No.
Send facsimile transmissions to FAX Number (202) 906-6518, Attention:
Docket No. 2001-XX.
Comments and the related index will be posted on the OTS Internet Site at
In addition, you may inspect comments at the Public Reference Room, 1700 G
Street, NW., by appointment. To make an appointment for access, call (202)
906-5922, send an e-mail to <firstname.lastname@example.org>,
or send a facsimile transmission to (202) 906-7755. (Prior notice
identifying the material you will be requesting will assist us in serving
you.) Appointments will be scheduled on business days between 10:00 a.m.
and 4:00 p.m. In most cases, appointments will be available the next
business day following the date a request is received.
FOR FURTHER INFORMATION CONTACT:
OCC: Karen Tucker, National Bank
Examiner, Community and Consumer Policy Division, (202) 874-4428; Margaret
Hesse, Special Counsel, Community and Consumer Law Division, (202)
874-5750; or Patrick Tierney, Attorney, Legislative & Regulatory
Activities Division, (202) 874-5090, Office of the Comptroller of the
Currency, 250 E Street, SW., Washington, DC 20219.
Board: William T. Coffey, Senior
Review Examiner, (202) 452-3946; Catherine M.J. Gates, Oversight Team
Leader, (202) 452-3946; or Kathleen C. Ryan, Senior Attorney, (202)
452-3667, Division of Consumer and Community Affairs, Board of Governors
of the Federal Reserve System, 20th Street and Constitution
Avenue, NW., Washington, DC 20551.
FDIC: Deanna Caldwell, Senior Policy
Analyst, (202) 942-3366; Stephanie Caputo, Fair Lending Specialist (202)
942-3413; or Robert Mooney, Assistant Director, (202) 942-3378, Division
of Compliance and Consumer Affairs; or Ann Johnson, Counsel, Legal
Division, (202) 898-3573, Federal Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429.
Anderson, Policy Analyst, Compliance Policy, (202) 906-7990; Theresa A.
Stark, Project Manager, Compliance Policy, (202) 906-7054; or Richard
Bennett, Counsel (Banking and Finance), (202) 906-7409, Office of Thrift
Supervision, 1700 G Street, NW., Washington, DC 20552.
The Federal financial supervisory
agencies are jointly undertaking a review of our CRA regulations, in
fulfillment of our commitment to do so when we adopted the current
regulations in 1995. See 60 FR 22156, 22177 (May 4, 1995). This
ANPR marks the beginning of our assessment of the effectiveness of the
regulations in achieving their original goals of (1) emphasizing in
examinations an institutionís actual performance in, rather than its
process for, addressing CRA responsibilities; (2) promoting consistency in
evaluations; and (3) eliminating unnecessary burden. Any regulatory
changes that we determine to be necessary to improve the regulationsí
effectiveness will be made in a rulemaking after completion of this
With our initiation of this comprehensive
review of the regulations, we seek to determine whether, and if so, how,
the regulations should be amended to better evaluate financial
institutionsí performance under the CRA, consistent with the authority,
mandate, and intent of the statute. We encourage comments from the
industry and the public on all aspects of this ANPR, as well as other
concerns regarding the regulations that may not be represented, in order
to ensure a full discussion of the issues.
In 1977, Congress enacted the CRA to
encourage federally insured banks and thrifts to help meet the credit
needs of their entire communities, including low- and moderate-income
neighborhoods, consistent with safe and sound banking practices. 12 U.S.C.
2901 et seq. In the CRA, Congress determined that:
(1) regulated financial institutions are
required by law to demonstrate that their deposit facilities serve the
convenience and needs of the communities in which they are chartered to do
(2) the convenience and needs of
communities include the need for credit services as well as deposit
(3) regulated financial institutions have
continuing and affirmative obligation[s] to help meet the credit needs of
the local communities in which they are chartered. (12 U.S.C. 2901(a).)
Further, Congress directed the agencies to assess an institutionís
record of meeting the credit needs of its entire community, and to
consider that record when acting on an application for a deposit facility.
In 1993, we initiated a reform of our CRA
regulations. The goal of the reform was to develop revised rules that
would clarify how we would evaluate the performance of the institutions we
supervise. It also was our goal to develop a new system of evaluating
financial institutionsí records with respect to CRA that would focus
primarily on objective, performance-based assessment standards that
minimize compliance burden while stimulating improved performance.
After holding seven public hearings and
publishing two proposed rules, we jointly issued final rules (the
"regulations") on May 4, 1995 (60 FR 22156). See 12 CFR
25, 228, 345, and 563e, implementing 12 U.S.C. 2901 et seq. We
published related clarifying documents on December 20, 1995 (60 FR 66048)
and May 10, 1996 (61 FR 21362). To assist financial institutions and the
public, we have also provided interpretive guidance about the regulations
in the form of questions and answers published in the Federal Register.
See 65 FR 25088 (April 28, 2000).
Under the regulations, the agencies
evaluate a financial institution through a performance-based examination,
the scope of which is determined by the institutionís size and business
strategy. Large, retail-oriented institutions are examined using the
lending, investment, and service tests. Small institutions are examined
using a streamlined small institution test. Wholesale and limited purpose
institutions are examined under a community development test. And,
finally, all institutions have the option of being evaluated under a
strategic plan. No matter which evaluation method is used, each
institutionís performance is evaluated in a "performance
context" that examiners factor into their CRA evaluations. The
performance context includes consideration of factors such as each
institutionís business strategy and constraints, as well as the needs
of, and opportunities afforded by, the communities served.
As stated, our goal was to make CRA
examinations more objective and performance-based. To this end, the
regulations require large institutions to collect, report, and disclose
data on small business, small farm and community development loans, as
well as limited data about home mortgage lending outside metropolitan
statistical areas (MSAs), if the institution is subject to the Home
Mortgage Disclosure Act (HMDA).
Issues for Comment
A fundamental issue for consideration
is whether any change to the regulations would be beneficial or is
warranted. Industry representatives, community and consumer organization
representatives, members of Congress, and the public have discussed the
regulations with the agencies over the years, e.g., during examinations,
in the application process, at conferences, and at other meetings. Some
suggest that the regulations work reasonably well and that little or no
change is necessary. Others suggest that more extensive changes may be
needed to reflect the significant changes in the delivery of services and
expansion of products offered by financial institutions as a result of new
technologies and financial modernization legislation. Still others advise
that regulatory changes are inherently burdensome, so the benefit of any
change should be weighed against the cost of effecting the change.
The following discussion identifies some of
the issues that may warrant our review. The discussion is by no means
exhaustive of all the issues that could be raised or the viewpoints that
could be expressed. Commenters are invited to respond to the questions
presented and to offer comments or suggestions on any other issues related
to the CRA regulations, including developments in the industry that may
impact how we evaluate CRA performance in the future. The agencies also
welcome suggestions on what, if any, other steps we might undertake
instead of, or in addition to, revising the regulations.
Retail Institutions: Lending, Investment, and Service Tests.
Large retail institutions are
subject to the lending, investment, and service tests. These tests
primarily consider such things as the number and dollar amount of loans,
qualified investments, and services, and the location and recipients of
these activities. The tests also call for qualitative consideration of an
institutionís activities, including whether, and to what extent, loans,
investments, and services are responsive to community credit needs;
whether and to what extent they are innovative, flexible, or complex
activities; and, in the case of investments, the degree to which the
investments are not routinely provided by private investors. Thus, the
regulations attempt to temper their reliance on quantitative factors by
requiring examiners to evaluate qualitative factors, because not all
activities of the same numerical magnitude have equal impact or entail the
same relative importance when undertaken by different institutions in
Nonetheless, because the tests first
consider the number and dollar amount of loans, investments, or services,
some are of the opinion that CRA evaluations have become simply a
"numbers game." They question whether the regulations strike the
right balance between evaluation of the quantity and quality of CRA
activities. They suggest, for example, that the regulations provide too
little consideration for an institutionís focus on smaller projects Ė
whether or not "innovative" Ė that are particularly difficult
to carry out, but are especially meaningful and responsive to the
Institutionsí CRA ratings reflect the
principle that lending is the primary vehicle for meeting a communityís
credit needs. In the 1995 preamble to the regulations, the agencies
published a ratings matrix for examiners to use when evaluating large
retail institutions under the lending, investment, and service tests.
Under this matrix, it is impossible for an institution to achieve a
"satisfactory" rating overall unless it receives at least a
"low satisfactory" rating on the lending test. The agencies
continue to use this ratings matrix.
With respect to the emphasis placed on each
category of an institutionís activities, some question whether lending
should be emphasized more than investments and services. They assert that
a CRA evaluation should allow for adjustment of this emphasis in a manner
that more nearly corresponds with the activities of the institution and
the particular needs of its community. For example, they assert, if an
institution does not significantly engage in retail lending and,
therefore, makes few loans, the lending test should not receive more
emphasis than the investment and service tests for that institutionís
Others contend, however, that lending
should always be stressed, because they believe that deposits derived from
communities should be reinvested in those communities through loans. Still
others assert that lending should be the only basis upon which
institutions are evaluated.
Finally, with respect to the three tests,
some have argued that an institutionís record of providing services
should be given more emphasis than it currently is given. Others assert
that providing services is not relevant to assessing whether an
institution is meeting the credit needs of its community.
Do the regulations strike the
appropriate balance between quantitative and qualitative measures, and
among lending, investments, and services? If so, why? If not, how should
the regulations be revised?
test. The agencies evaluate an institutionís lending performance by
considering the number and amount of loans originated or purchased by the
institution in its assessment area; the geographic distribution of its
lending; characteristics, such as income level, of its borrowers; its
community development lending; and its use of innovative or flexible
lending practices to address the credit needs of low- or moderate-income
individuals or geographies in a safe and sound manner.
One aspect of the lending test that some
have raised with the agencies is that the regulations allow equal
consideration for loan originations and purchases. Some assert that only
loan originations should be considered in an institutionís evaluation.
Supporters of this position maintain that consideration of loan purchases
does not encourage institutions to increase capital in their communities.
Rather, they believe equal consideration may prompt institutions to buy
and sell the same loans repeatedly to influence their CRA ratings. On the
other hand, some contend that loan purchases free up capital to the
selling institution, thus enabling it to make additional loans. Still
others argue that both purchases and originations should be considered,
but originations should be weighted more heavily because they require more
involvement by the institution with the borrower.
A related issue focuses on how the agencies
should treat secondary market activity. The regulations currently capture
purchased loans under the lending test and purchased asset-backed
securities under the investment test. Some find this distinction to be
artificial, and propose that purchased loans and purchased asset-backed
securities should be captured under the same test, although they differ on
which test should be used.
In addition, some are concerned that the
regulations generally seem to provide consideration of loans without
regard to whether the lending activities are appropriate. They recommend
that a CRA examination also should include consideration of whether
certain loans contain harmful or abusive terms and, therefore, do not help
to meet community credit needs.
Does the lending test effectively assess
an institutionís record of helping to meet the credit needs of its
entire community? If so, why? If not, how should the regulations be
B. Investment test. The
agencies evaluate large retail institutionsí performance under the
investment test based on the dollar amount of qualified investments, their
innovativeness or complexity, their responsiveness to credit and community
development needs, and the degree to which they are not routinely provided
by private investors. The agencies included the investment test in CRA
evaluations in recognition that investments, as well as loans, can help
meet credit needs.
With respect to whether it is appropriate
to evaluate institutionsí investment activities, some suggest that
investments by financial institutions are invaluable in helping to meet
the credit needs of the institutionsí communities, particularly in low-
and moderate-income areas. Still others assert that the agencies should
only consider investment activities to augment institutionsí CRA
ratings. In their view, although investments may help an institution to
meet the credit needs of its community, particularly in low- and
moderate-income areas, CRA ratings should be based primarily on lending
activity. Others state, however, that it is inappropriate for the agencies
to evaluate investments under the CRA as a means of meeting credit needs.
The availability of qualified investments
has also been an issue of concern to some. Although some have observed
that since the regulations went into effect, the market of available
CRA-related investments has grown and continues to grow, others assert
that appropriate investment opportunities may not be available in their
communities. Further, some of the retail institutions subject to the
investment test have indicated that, in some cases, it has been difficult
to compete for investment opportunities, particularly against much larger
In addition, some have raised concerns that
the innovative and complex elements of the investment test lead to a
constant demand to change programs, even where existing programs are
successful, just to maximize CRA consideration. Others have asked the
agencies to reduce the uncertainty of how investments will be evaluated in
Does the investment test effectively
assess an institutionís record of helping to meet the credit needs of
its entire community? If so, why? If not, how should the regulations be
C. Service test. Under
the service test, the agencies consider an institutionís branch
distribution among geographies of different income levels, its record of
opening and closing branches, particularly in low- and moderate-income
geographies, the availability and effectiveness of alternative systems for
delivering retail banking services in low- and moderate-income geographies
and to low- and moderate-income individuals, and the range of services
provided in geographies of all income levels, as well as the extent to
which those services are tailored to meet the needs of those geographies.
The agencies also consider the extent to which the institution provides
community development services and the innovativeness and responsiveness
of those community development services.
The criteria for evaluating retail services
have led to discussion on the testís effectiveness. Some argue that the
service test depends too heavily on the provision of brick and mortar
banking services, particularly when one considers that many services are
now provided by telephone, mail or electronically. Others assert that
brick and mortar banking facilities should be weighted heavily because
they are necessary, especially in low- and moderate-income neighborhoods
where consumers may not have access to electronic banking services. These
issues have led some to propose that the evaluation should consider not
only the delivery method and type of service, but also the effectiveness
of the delivery method, i.e., the extent to which low- and moderate-income
persons actually use the services offered. In addition, some have
suggested that the test should provide more consideration for flexible and
innovative deposit accounts.
As for community development services, such
as providing technical assistance on financial matters to nonprofit
organizations serving low- and moderate-income housing needs, some suggest
that these services are not given adequate consideration. In particular,
they state that community development services are often a critical
component of delivering or supporting activities considered under the
lending test. Some also argue, however, that there is no incentive for an
institution to engage in what might be labor intensive endeavors because
community development services are only a small component of its overall
evaluation. Others suggest that community development services should be
evaluated within the context of other community development activities,
such as lending and investments, because evaluating them separately could
result in artificial designations and may not give adequate consideration
to the integral relationship among the activities. Still others suggest
that the community development and retail services components should be
combined. See related discussion in 1.D.
Does the service test effectively assess
an institutionís record of helping to meet the credit needs of its
entire community? If so, why? If not, how should the regulations be
D. Community development activities
of large retail institutions. Under
the regulations, "community development" means affordable
housing (including multifamily rental housing) for low- or moderate-income
individuals; community services targeted to low- or moderate-income
individuals; activities that promote economic development by financing
small businesses and farms; and activities that revitalize or stabilize
low- or moderate-income geographies.
The definition of "community
development" has spurred discussion since the regulations were
published. Some assert that the definition of "community
development" is not broad enough to cover the full range of
activities that should receive favorable consideration. For example, some
indicate that many projects intended to revitalize or stabilize rural
communities do not qualify under the current regulatory definition of
community development because they are not located in low- or
moderate-income geographies, as defined in the regulations. Others assert
that the definition does not adequately value activities benefiting
communities or projects involving persons with a mix of incomes.
Issues also have arisen with respect to the
geographic location of an institutionís community development
activities. For large retail institutions, the agencies consider community
development activities in their assessment areas or a broader statewide or
regional area that includes their assessment areas. Some suggest that
large retail institutions should receive full consideration for community
development activities anywhere they are conducted, as long as the
institutions have adequately addressed the needs of their assessment
areas. They contend that such consideration should be similar to the
consideration of community development activities given wholesale and
limited purpose institutions that are evaluated under the community
development test. Others express concern, however, that if retail
institutions are given the opportunity to receive consideration for
community development activities outside their assessment areas and the
broader statewide or regional areas that include their assessment areas,
such an opportunity may be interpreted as a requirement to serve these
areas. Still others argue that allowing activities further afield to
receive consideration would diminish institutionsí incentives to serve
their own communities.
As discussed above, the community
development loans, qualified investments, and community development
services of large retail institutions are considered separately under the
lending, investment, and service tests, respectively. Some suggest this
evaluation method leads institutions to be overly concerned with whether
they have "enough" of each activity. They argue that all
community development activities, whether loans, investments or services,
should be evaluated in one separate test, rather than in the existing
three tests. Under such a test, an institution would receive consideration
for community development loans, investments, and services needed in its
community, based on the opportunities that exist and the ability of the
institution to respond.
Are the definitions of "community
development" and related terms appropriate? If so, why? If not, how
should the regulations be changed?
Are the provisions relating to community
development activities by institutions that are subject to the lending,
investment, and service tests effective in assessing those institutionsí
performance in helping to meet the credit needs of their entire
communities? If so, why? If not, how should the regulations be revised?
Institutions: The Streamlined Small Institution Evaluation.
A "small institution" is
defined as an institution with total assets of less than $250 million that
is independent or is affiliated with a holding company with total bank and
thrift assets of less than $1 billion as of the two preceding year ends.
Some suggest that the asset thresholds for being considered a small
institution are too low. Others assert that holding company assets are
irrelevant Ė if a bank has less than $250 million in assets, it should
be considered small even if it is affiliated with a large holding company.
Still others suggest that holding company assets are relevant only if the
holding company provides support for CRA activities or otherwise directs
the CRA activities of an institution.
Small institutions are evaluated under a
streamlined test that focuses primarily on lending. When evaluating a
small institution, an agency considers its loan-to-deposit ratio; the
percentage of loans in its assessment areas; its record of lending to
borrowers of different income levels and businesses and farms of different
sizes; the geographic distribution of its loans; and its 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).
The small institution performance standards
generally have been favorably received. Some, however, express concerns
that the small institution assessment method does not provide for adequate
consideration of non-lending-related investments, retail-related services,
or community development services. Others assert that the small
institution performance standards do not adequately consider the
activities small institutions are performing in their communities,
particularly in highly competitive markets. Others say that the standards
do not create a sufficient incentive for small institutions to seek out
and make investments, provide new services, or strive for higher ratings.
Some also argue that institutions evaluated under the streamlined method
should not be eligible for an "outstanding" rating based on
their lending activities alone Ė that a small institution should be
engaged in making investments and providing services in order to receive a
rating higher than satisfactory.
Do the provisions relating to asset size
and holding company affiliation provide a reasonable and sufficient
standard for defining "small institutions" that are eligible for
the streamlined small institution evaluation test? If so, why? If not, how
should the regulations be revised?
Are the small institution
performance standards effective in evaluating such institutionsí CRA
performance? If so, why? If not, how should the regulations be revised?
3. Limited Purpose and Wholesale
The community development test is
the evaluation method used for limited purpose and wholesale institutions.
A limited purpose institution offers only a narrow product line (such as
credit card or motor vehicle loans) to a regional or broader market and
must request and receive designation as a limited purpose institution from
its regulatory agency. A wholesale institution is not in the business of
extending home mortgage, small business, small farm, or consumer loans to
retail customers, and similarly must obtain a designation as a wholesale
Some question whether the definitions of
limited purpose and wholesale institutions are appropriate. For example,
they ask whether the definition of limited purpose should be expanded to a
limited extent to capture retail institutions that offer more than a
narrow product line on a regional or national basis.
Under the community development test, the
agencies consider the number and amount of community development loans,
qualified investments, or community development services; the use of
innovative or complex qualified investments, community development loans,
or community development services and the extent to which the investments
are not routinely provided by private investors; and the institutionís
responsiveness to credit and community development needs. Wholesale and
limited purpose institutions may receive consideration for community
development activities outside of their assessment areas (or a broader
statewide or regional area that includes their assessment areas) as long
as they have adequately addressed the needs of their assessment areas.
Some question whether the community
development test for wholesale and limited purpose institutions is as
rigorous as the lending, investment, and service tests are for large
retail institutions. Others suggest that the community development test
may be an appropriate test not only for limited purpose and wholesale
institutions, but also for other types of institutions, such as branchless
institutions that provide a broad range of retail services nationwide by
telephone, mail, or electronically. Still others assert that the community
development test may be an appropriate test for any retail institution.
Are the definitions of "wholesale
institutions" and "limited purpose institution"
appropriate? If so, why? If not, how should the regulations be revised?
Does the community development test provide
a reasonable and sufficient standard for assessing wholesale and limited
purpose institutions? If so, why? If not, how should the regulations be
Would the community development test
provide a reasonable and sufficient standard for assessing the CRA record
of other insured depository institutions, including retail institutions?
If so, why and which ones, and how should the regulations be revised? If
not, why not?
The agencies developed the
strategic plan option to provide institutions with more flexibility and
certainty regarding what aspects of their performance will be evaluated
and what quantitative and qualitative measures will be applied. To
exercise this option, an institution must informally seek suggestions from
the public while developing its plan, solicit formal public comment on its
plan, and submit the plan to its regulatory agency (along with any written
comments received from the public and an explanation of any changes made
to the plan in response to those public comments).
To be approved by an agency, a CRA
strategic plan must have measurable goals and address how the institution
plans to meet the credit needs of its assessment area, in particular, low-
and moderate-income geographies and individuals, through lending,
investments, and services, as appropriate. Although strategic plans should
generally emphasize lending goals, the rule allows institutions the
flexibility to choose a different emphasis, as necessary, given their
business strategy and the needs of their community.
Strategic plans must contain goals that, if
met, would constitute "satisfactory" performance. An institution
may also include goals that would constitute "outstanding"
performance. Upon examination, an institution that substantially achieves
its goals under its approved plan will receive the rating attributed to
those goals in its plan.
Only a few institutions have used the
strategic plan option. These institutions indicate that they prefer the
certainty provided by having a strategic plan. On the other hand, others
have said that they have chosen not to pursue this option because of
concern about the public nature of the process and the plan itself,
including concern that their competitors might obtain information about
their business strategy. Some indicate that they have found it difficult
to develop a strategic plan with measurable goals. These concerns have led
some to suggest that the strategic plan option should be reformed, while
others suggest that it should be eliminated.
Some suggest that a strategic plan allows
non-traditional institutions, such as institutions that provide a wide
range of products nationwide via the Internet or through other
non-branch-based delivery systems, to set performance goals that better
reflect the markets they serve. Some suggest that a strategic plan should
be mandatory for certain non-traditional institutions, particularly an
institution for which the vast majority of retail lending activity occurs
outside of its assessment area as defined by the regulation. Others
suggest that the strategic plan option could be used to blend existing
assessment methods for different business lines within one institution,
for example, in the context of a bank with a retail branch network in one
part of the country and wholesale operations in another, or an Internet
Does the strategic plan option provide
an effective alternative method of evaluation for financial institutions?
If so, why? If not, how should the regulations be revised?
The regulations provide that an
institutionís performance under the tests and standards is evaluated in
the context of information about the institution, its community, its
competitors, and its peers. Such information may include, among other
things, demographic data about the institutionís assessment areas; the
institutionís product offerings and business strategy; lending,
investment, and service opportunities in its assessment areas; any
institutional capacity and constraints; and information about the
institutionís past performance and the performance of similarly situated
Some assert that performance context
provides a means to evaluate the qualitative impact of an institutionís
activities in a community, striking the right balance between the quantity
and quality of an institutionís activity. The appropriate information
helps to assess the responsiveness of an institutionís activities to
community credit needs. Performance context may also provide insight into
whether an activity involving a lower dollar amount could meet community
needs to a greater extent than an activity with a higher dollar amount,
but with less innovation, complexity, or impact on the community.
Others assert that consideration of a
performance context may create uncertainty about what activities will be
considered and how they will be weighted during a CRA examination. They
contend that more specific and quantifiable measures are needed to
understand CRA evaluations more fully, despite the quantitative and
qualitative factors outlined in the regulations and interagency guidance.
On the other hand, others have raised
concerns that prescribing performance ratios for institutions would result
in rigid performance requirements, and thereby eliminate the advantages of
a performance context analysis. They maintain that the performance context
provides examiners with the latitude needed to conduct a meaningful
evaluation. They contend this latitude is important given the different
types of institutions and communities, and the wide variety of business,
market, economic, and other factors that can affect an institutionís
ability to respond to community credit needs.
Are the provisions on performance
context effective in appropriately shaping the quantitative and
qualitative evaluation of an institutionís record of helping to meet the
credit needs of its entire community? If so, why? If not, how should the
regulations be revised?
The regulations contain guidelines
for institutions to use in defining their assessment areas. The assessment
area is the geographic area in which the agencies will evaluate an
institutionís record of meeting the credit needs of its community. The
regulations provide that an institutionís assessment area should consist
generally of one or more metropolitan statistical areas or one or more
contiguous political subdivisions, and include geographies where the
institution has its main office, branches, and deposit-taking ATMs, as
well as surrounding geographies where the institution has originated or
purchased a substantial portion of its loans. An institution may adjust
the boundaries of its assessment area to include only the portion of a
political subdivision that it can reasonably expect to serve. However, an
institutionís assessment area may not reflect illegal discrimination and
may not arbitrarily exclude low- or moderate-income geographies, taking
into account the institutionís size and financial condition.
Some indicate that the assessment area
delineation in the regulations has proven appropriate for most
institutions. They assert that assessment areas are appropriately limited
to the geographic areas around an institutionís main office, branches,
and deposit-taking ATMs. They contend that this is an appropriate and
practical way to give focus to an institutionís responsibility to help
meet the credit needs of its community. Further, they contend that an
institution is most familiar with the areas in which it is physically
located and is in the best position to help meet credit needs in those
areas. Still others are concerned about setting expectations on where
institutions should be conducting their business if assessment areas were
to include areas in which the institutions are not physically located.
On the other hand, some assert that the
regulationsí designation of assessment areas Ė based upon the location
of the main office, branches, and deposit-taking ATMs of an institution
Ė ignores a variety of deposit acquisition and credit distribution
channels used by an increasing number of institutions to serve the retail
public, often reaching widely dispersed markets. They argue that these
channels should be considered part of an institutionís
"community." Others suggest that the regulationsí approach to
assessment area may create a disincentive for institutions to engage in
community development activities in low- and moderate-income communities
and rural areas where they have no physical presence and which are not
part of their assessment areas.
To address these and other concerns, some
recommend that institutions be required to delineate geographically
defined assessment areas wherever they deliver retail banking services,
whether or not they have physical deposit-gathering branches or ATMs in
each locale. Others suggest that the assessment area should not be limited
to metropolitan statistical areas (MSAs), but that the regulations should
allow statewide and even national assessment areas. Some others suggest
that assessment areas without a geographical delimitation should be
allowed, such as one based on a type of customer Ė similar to the way an
institution that predominantly serves military personnel is permitted by
the statute to delineate its entire deposit customer base as its
assessment area. Finally, some propose that the agencies should create a
distinct evaluation method with respect to the assessment area for
institutions that gather deposits and deliver products and services
without using deposit-taking branches or ATMs, for example, those
institutions that use the Internet almost exclusively to gather deposits
and deliver products.
Do the provisions on assessment areas,
which are tied to geographies surrounding physical deposit-gathering
facilities, provide a reasonable and sufficient standard for designating
the communities within which the institutionís activities will be
evaluated during an examination? If so, why? If not, how should the
regulations be revised?
Under the lending, investment, and
service tests and the community development test, an institution may elect
to have activities of its affiliates considered as part of its own record
of performance. An "affiliate" is defined as any company that
controls, is controlled by, or is under common control with another
company. Subsidiaries of financial institutions are considered affiliates
under this definition.
Some assert that activities of affiliates,
and in particular, subsidiaries of a financial institution, should always
be considered in an institutionís CRA evaluation. They contend that,
because the regulations provide for consideration of affiliatesí
activities only at an institutionís option, some institutions may book
loans, make investments, and provide services for low- and moderate-income
persons primarily in the institution, while offering other products and
services more predominantly targeted to middle- and upper-income persons
in their affiliates or by lending through consortia. Thus, they argue,
institutions may be using their affiliatesí activities to manipulate
their CRA ratings. Others contend that if institutions can opt for
consideration of affiliatesí activities to enhance their CRA
performance, their CRA performance should also be affected if their
affiliates engage in abusive lending activities.
Others suggest that affiliate activities
should be required to have a direct impact on an institutionís
assessment area. Still others assert that only the activities of an
insured depository institution should be considered in its CRA evaluation.
Affiliate activities should be irrelevant, they argue, when rating an
institutionís CRA performance and should not be considered, even at the
option of the institution. On the other hand, others have indicated that
the current treatment of affiliate activities is appropriate because the
CRA applies only to insured depository institutions.
Are the provisions on affiliate
activities, which permit consideration of an institutionís affiliatesí
activities at the option of the institution, effective in evaluating the
performance of the institution in helping to meet the credit needs of its
entire community, and consistent with the CRA statute? If so, why? If not,
how should the regulations be revised?
Collection and Maintenance of Public Files.
The regulations require large
institutions to collect and report data on small business, small farm and
community development lending, as well as limited data about home mortgage
lending outside MSAs, if the institutions are subject to HMDA. The data
requirements were designed to avoid undue data collection, reporting, and
disclosure burden by: (1) conforming data requirements to the extent
possible with data already collected under HMDA, call reports, and thrift
financial reports; (2) limiting data reporting to large institutions; and
(3) making reporting of certain types of data optional.
Some question the agenciesí authority to
require collection and reporting of data under the CRA regulations. Others
express concerns about the limitations of the data collected and reported.
For example, small business and small farm data are aggregated at the
census tract level, while community development loans are aggregated at
the institution level. Still others question whether the collected and
reported data are sufficiently detailed to be of use. Some also suggest
that investment data, as well as data on lending, are necessary to
properly evaluate institutionsí performance under CRA.
Some indicate that collection of the
required data and maintenance of a public file is burdensome and that very
few interested parties ask to see the public files. However, others assert
that institutionsí public files provide valuable information for the
public to use to monitor the extent to which they serve their communities.
Are the data collection and reporting
and public file requirements effective and efficient approaches for
assessing an institutionís CRA performance while minimizing burden? If
so, why? If not, how should the regulations be revised?
With this ANPR, we seek input to assist
us in determining whether and, if so, how the CRA regulations should be
revised. We welcome comments on all aspects of the CRA regulations and
encourage all interested parties to provide their views. Hearing from
parties with diverse viewpoints will help us to determine the most
appropriate way to approach the review of the regulations.
Executive Order 12866
OCC and OTS:
The agencies do not know now whether they will propose changes to the CRA
rules and, if so, whether these changes will constitute a significant
regulatory action under the Executive Order. This ANPR neither establishes
nor proposes any regulatory requirements. OCC and OTS have submitted a
notice of planned regulatory action to OMB for review. Because this ANPR
does not contain a specific proposal, information is not available with
which to prepare an economic analysis. OCC and OTS will prepare a
preliminary analysis if they proceed with a proposed rule that constitutes
a significant regulatory action.
Accordingly, we solicit comment,
information, and data on the potential effects on the economy of any
changes to the CRA rule that the commenter may recommend. We will
carefully consider the costs and benefits associated with this rulemaking.
[This signature page relates to the
joint advance notice of proposed rulemaking entitled "Community
Reinvestment Act Regulations."]
John D. Hawke, Jr.
Comptroller of the Currency
[This signature page relates to the joint
advance notice of proposed rulemaking entitled "Community
Reinvestment Act Regulations."]
Jennifer J. Johnson
Secretary of the Board,
Board of Governors of the Federal Reserve
[This signature page relates to the
joint advance notice of proposed rulemaking entitled "Community
Reinvestment Act Regulations."]
Robert E. Feldman
Federal Deposit Insurance Corporation
[This signature page relates to the
joint advance notice of proposed rulemaking entitled "Community
Reinvestment Act Regulations."]