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FDIC Federal Register Citations

[Federal Register: July 19, 2001 (Volume 66, Number 139)]
[Proposed Rules]               
[Page 37602-37608]
From the Federal Register Online via GPO Access []

Proposed Rules
                                                Federal Register

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.


[[Page 37602]]


Office of the Comptroller of the Currency

12 CFR Part 25

[Docket No. 01-16]
RIN 1557-AB98


12 CFR Part 228

[Regulation BB; Docket No. R-1112]


12 CFR Part 345

RIN 3064-AC50


Office of Thrift Supervision

12 CFR Part 563e

[Docket No. 2001-49]
RIN 1550-AB48

Community Reinvestment Act Regulations

AGENCIES: 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).

ACTION: Joint advance notice of proposed rulemaking.


SUMMARY: The 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 

DATES: Comments must be received by October 17, 2001.

ADDRESSES: OCC: Please direct your comments to: Docket No. 01-16, 
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-1112 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 to 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.
    FDIC: 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.
    Delivery: 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.
    Facsimile: Send facsimile transmissions to fax number (202) 898-
    Electronic: Comments may be submitted to the FDIC electronically 
over the Internet at
publiccomments/index.html. 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 FDIC's street address. Like 
comments or suggestions submitted in hard copy to the FDIC's street 
address, EPC site comments will be made available in their entirety 
(including the commenter's name and address if the commenter chooses to 
provide them) for public inspection. The FDIC, however, will not use an 
individual's 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 provided.
    You may also electronically mail comments to
    Public Inspection: 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.
    OTS: Mail: Send comments to Regulation Comments, Chief Counsel's 
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552, Attention Docket No. 2001-49.
    Delivery: Hand deliver comments to the Guard's 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 Counsel's Office, Attention 
Docket No. 2001-49.
    Facsimiles: Send facsimile transmissions to FAX Number (202) 906-
6518, Attention: Docket No. 2001-49.
    E-Mail: Send e-mails to, Attention 
Docket No. 2001-49 and include your name and telephone number.
    Public Inspection: 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, 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

[[Page 37603]]

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 

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.
    OTS: Celeste 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 



    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 institution's 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 regulations' effectiveness will be made in a rulemaking 
after completion of this review.
    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 
institutions' 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 business;
    (2) The convenience and needs of communities include the need for 
credit services as well as deposit services; and
    (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 institution's 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 institutions' 
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 institution's 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 
institution's performance is evaluated in a ``performance context'' 
that examiners factor into their CRA evaluations. The performance 
context includes consideration of factors such as each institution's 
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.

[[Page 37604]]

    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.

1. Large 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 institution's 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 different 
    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 
institution's focus on smaller projects `` whether or not 
``innovative'' `` that are particularly difficult to carry out, but are 
especially meaningful and responsive to the institution's community.
    Institutions' CRA ratings reflect the principle that lending is the 
primary vehicle for meeting a community's 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 
institution's 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 institution's 
CRA evaluation.
    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 
institution's 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 
    A. Lending test. The agencies evaluate an institution's 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 
    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 institution's 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 
 Does the lending test effectively assess an institution's 
record of helping to meet the credit needs of its entire community? If 
so, why? If not, how should the regulations be revised?
    B. Investment test. The agencies evaluate large retail 
institutions' 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 
    With respect to whether it is appropriate to evaluate institutions' 
investment activities, some suggest that investments by financial 
institutions are invaluable in helping to meet the credit needs of the 
institutions' communities, particularly in low- and moderate-income 
areas. Still others assert that the agencies should only consider 
investment activities to augment institutions' 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

[[Page 37605]]

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 an examination.
 Does the investment test effectively assess an 
institution's record of helping to meet the credit needs of its entire 
community? If so, why? If not, how should the regulations be revised?
    C. Service test. Under the service test, the agencies consider an 
institution's 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 test's 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 institution's 
record of helping to meet the credit needs of its entire community? If 
so, why? If not, how should the regulations be revised?
    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 
    Issues also have arisen with respect to the geographic location of 
an institution's 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 institutions' 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

[[Page 37606]]

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 institutions' 
performance in helping to meet the credit needs of their entire 
communities? If so, why? If not, how should the regulations be revised?

2. Small 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--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--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 institutions' CRA performance? If so, why? If not, 
how should the regulations be revised?

3. Limited Purpose and Wholesale Institutions: The Community 
Development Test

    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 institution.
    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 institution's 
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 
    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?

4. Strategic Plan

    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

[[Page 37607]]

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 presence nationally.
 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?

5. Performance Context

    The regulations provide that an institution's 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 
institution's assessment areas; the institution's product offerings and 
business strategy; lending, investment, and service opportunities in 
its assessment areas; any institutional capacity and constraints; and 
information about the institution's past performance and the 
performance of similarly situated lenders.
    Some assert that performance context provides a means to evaluate 
the qualitative impact of an institution's activities in a community, 
striking the right balance between the quantity and quality of an 
institution's activity. The appropriate information helps to assess the 
responsiveness of an institution's 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 institution's ability to 
respond to community credit needs.
 Are the provisions on performance context effective in 
appropriately shaping the quantitative and qualitative evaluation of an 
institution's record of helping to meet the credit needs of its entire 
community? If so, why? If not, how should the regulations be revised?

6. Assessment Areas

    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 institution's record of 
meeting the credit needs of its community. The regulations provide that 
an institution's 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 institution's assessment area may not reflect illegal discrimination 
and may not arbitrarily exclude low- or moderate-income geographies, 
taking into account the institution's 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 institution's main office, branches, and deposit-taking ATMs. 
They contend that this is an appropriate and practical way to give 
focus to an institution's 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 regulations' designation of 
assessment areas `` based upon the location of the main office, 
branches, and deposit-taking ATMs of an institution--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 institution's ``community.'' Others 
suggest that the regulations' 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 

[[Page 37608]]

assessment areas without a geographical delimitation should be allowed, 
such as one based on a type of customer--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 institution's activities will be evaluated during an 
examination? If so, why? If not, how should the regulations be revised?

7. Activities of Affiliates

    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 institution's CRA evaluation. They contend that, because the 
regulations provide for consideration of affiliates' activities only at 
an institution's 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 affiliates' activities to 
manipulate their CRA ratings. Others contend that if institutions can 
opt for consideration of affiliates' 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 institution's 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 institution's 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 institution's affiliates' 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?

8. Data 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 agencies' 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 institutions' 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 institutions' 
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 
institution's 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 
    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.

    Dated: July 11, 2001.
John D. Hawke, Jr.,
Comptroller of the Currency.
    Dated: July 12, 2001.
Jennifer J. Johnson,
Secretary of the Board, Board of Governors of the Federal Reserve 
    By order of the Board of Directors.

Federal Deposit Insurance Corporation.

    Dated at Washington, DC, this 10th day of July, 2001.
Robert E. Feldman,
Executive Secretary.
    Dated: July 10, 2001.
Ellen Seidman,
Director, Office of Thrift Supervision.
[FR Doc. 01-18033 Filed 7-18-01; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P

Last Updated 07/19/2001

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