Rule2023-25797
Community Reinvestment Act
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 1, 2024
Effective
April 1, 2024
Issuing agencies
Treasury DepartmentComptroller of the CurrencyFederal Reserve SystemFederal Deposit Insurance Corporation
Abstract
The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) are adopting final amendments to their regulations implementing the Community Reinvestment Act of 1977 (CRA) to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.
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[Federal Register Volume 89, Number 22 (Thursday, February 1, 2024)]
[Rules and Regulations]
[Pages 6574-7222]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-25797]
[[Page 6573]]
Vol. 89
Thursday,
No. 22
February 1, 2024
Part II
Department of the Treasury
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Office of the Comptroller of the Currency
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Federal Reserve System
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Federal Deposit Insurance Corporation
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12 CFR Parts 25, 228, and 345
Community Reinvestment Act; Final Rule
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 /
Rules and Regulations
[[Page 6574]]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 25
[Docket ID OCC-2022-0002]
RIN 1557-AF15
FEDERAL RESERVE SYSTEM
12 CFR Part 228
[Regulation BB; Docket No. R-1769]
RIN 7100-AG29
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 345
RIN 3064-AF81
Community Reinvestment Act
AGENCY: Office of the Comptroller of the Currency, Treasury; Board of
Governors of the Federal Reserve System; and Federal Deposit Insurance
Corporation.
ACTION: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of
Governors of the Federal Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC) are adopting final amendments to
their regulations implementing the Community Reinvestment Act of 1977
(CRA) to update how CRA activities qualify for consideration, where CRA
activities are considered, and how CRA activities are evaluated.
DATES:
Effective date: This rule is effective on April 1, 2024, except for
amendment nos. 29, 52, and 75, which are effective April 1, 2024,
through January 1, 2031, and amendment nos. 7, 11, 18, 20, 25, 35, 39,
43, 45, 49, 58, 62, 66, 68, and 72, which are delayed indefinitely. The
agencies will publish a document in the Federal Register announcing an
effective date for the delayed amendments.
Applicability date: Sections __.12 through __.15, __.17 through
__.30, and __.42(a); the data collection and maintenance requirements
in Sec. __.42(c) through (f); and appendices A through F of the common
rule text as adopted by the OCC, Board, and FDIC are applicable on
January 1, 2026. Section __.42(b) and (g) through (i) and the reporting
requirements in Sec. __.42(c) through (f) of the common rule text as
adopted by the OCC, Board, and FDIC are applicable on January 1, 2027.
FOR FURTHER INFORMATION CONTACT:
OCC: Heidi M. Thomas, Senior Counsel, or Emily Boyes, Counsel,
Chief Counsel's Office, (202) 649-5490; or Vonda Eanes, Director for
CRA and Fair Lending Policy, or Cassandra Remmenga, CRA Modernization
Program Manager, Bank Supervision Policy, (202) 649-5470, Office of the
Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
If you are deaf, hard of hearing, or have a speech disability, please
dial 7-1-1 to access telecommunications relay services.
Board: Taz George, Senior Supervisory Policy Analyst; Dorian
Hawkins, Counsel; S. Caroline (Carrie) Johnson, Manager; Matthew
Lambert, Senior Supervisory Analyst; Eric Lum, Senior Supervisory
Analyst; Cayla Matsumoto, Supervisory Policy Analyst; or Lisa Robinson,
Lead Supervisory Policy Analyst; Lorna Neill, Senior Counsel; Amal
Patel, Senior Counsel; or Jaydee DiGiovanni, Counsel; Division of
Consumer and Community Affairs or David Alexander, Special Counsel;
Cody Gaffney, Senior Attorney; or Gavin Smith, Senior Counsel; Legal
Division, Board of Governors of the Federal Reserve System at (202)
452-2412 or. For users of TDD-TYY, (202) 263-4869 or dial 711 from any
telephone anywhere in the United States.
FDIC: Pamela A. Freeman, Senior Examination Specialist, Compliance
and CRA Examinations Branch, Division of Depositor and Consumer
Protection, (202) 898-3656; Patience R. Singleton, Senior Policy
Analyst, Supervisory Policy Branch, Division of Depositor and Consumer
Protection, (202) 898-6859; Sherry Ann Betancourt, Counsel, Legal
Division, (202) 898- 6560; Alys V. Brown, Senior Attorney, Legal
Division, (202) 898-3565, Federal Deposit Insurance Corporation, 550
17th Street NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Summary of the Final Rule
II. Background
III. General Comments Received
IV. Section-by-Section Analysis
Section __.11 Authority, Purposes, and Scope
Section __.12 Definitions
Section __.13 Consideration of Community Development Loans,
Community Development Investments, and Community Development
Services
Section __.14 Community Development Illustrative List;
Confirmation of Eligibility
Section __.15 Impact and Responsiveness Review of Community
Development Loans, Community Development Investments, and Community
Development Services
Section __.16 Facility-Based Assessment Areas
Section __.17 Retail Lending Assessment Areas
Section __.18 Outside Retail Lending Areas
Section __.19 Areas for Eligible Community Development Loans,
Community Development Investments, and Community Development
Services
Section __.21 Evaluation of CRA Performance in General
Section __.22 Retail Lending Test
Section __.23 Retail Services and Products Test
Section __.24 Community Development Financing Test
Section __.25 Community Development Services Test
Section __.26 Limited Purpose Banks
Section __.27 Strategic Plan
Section __.28 Assigned Conclusions and Ratings
Section __.29 Small Bank Performance Evaluation
Section __.30 Intermediate Bank Performance Evaluation
Section __.31 Effect of CRA Performance on Applications
Section __.42 Data Collection, Reporting, and Disclosure
Section __.43 Content and Availability of Public File
Section __.44 Public Notice by Banks
Section __.45 Publication of Planned Examination Schedule
Section __.46 Public Engagement
Section __.51 Applicability Dates and Transition Provisions
V. Regulatory Analysis
I. Summary of the Final Rule
The CRA \1\ is a seminal piece of legislation that requires the
OCC, the Board, and the FDIC (together referred to as the agencies, and
each, individually, the agency) to assess a bank's \2\ record of
meeting the credit needs of its entire community, including low- and
moderate-income neighborhoods, consistent with the bank's safe and
sound operation. Upon completing this examination, the statute requires
the agencies to ``prepare a written evaluation of the institution's
record of meeting the credit needs of its entire community, including
low- and moderate-income neighborhoods.'' \3\ The statute further
provides that each agency must consider a bank's CRA performance ``in
its evaluation of an application for a deposit facility by such
institution.'' \4\ The agencies implement
[[Page 6575]]
the CRA and establish the framework and criteria by which the agencies
assess a bank's performance through their individual CRA regulations,
which are supplemented by supervisory guidance.\5\ Under the CRA
regulations, the agencies apply different evaluation standards for
banks of different asset sizes and types.
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\1\ 12 U.S.C. 2901 et seq.
\2\ For purposes of this SUPPLEMENTARY INFORMATION, the term
``bank'' includes insured national and State banks, Federal and
State savings associations, Federal branches as defined in 12 CFR
part 28, insured State branches as defined in 12 CFR 345.11(c), and
State member banks as defined in 12 CFR part 208, except as provided
in 12 CFR __.11(c).
\3\ 12 U.S.C. 2906(a).
\4\ 12 U.S.C. 2903(a)(2).
\5\ See 12 CFR parts 25 (OCC), 228 (Regulation BB) (Board), and
345 (FDIC). For clarity and to streamline references, citations to
the agencies' existing common CRA regulations are provided in the
following format: current 12 CFR __.xx. For example, references to
12 CFR 25.12 (OCC), 228.12 (Board), and 345.12 (FDIC) would be
streamlined as follows: ``current 12 CFR __.12.'' Likewise,
references to the agencies' proposed and final common CRA
regulations are provided in the following formats, respectively:
``proposed Sec. __.xx'' and ``final Sec. __.xx.''
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The agencies issued a notice of proposed rulemaking published in
the Federal Register on June 3, 2022 (NPR, proposal, or the proposed
rule),\6\ seeking comment on updates to their respective CRA
regulations to achieve the following objectives:
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\6\ 87 FR 33884 (June 3, 2022).
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<bullet> Strengthen the achievement of the core purpose of the
statute;
<bullet> Adapt to changes in the banking industry, including the
expanded role of mobile and online banking;
<bullet> Provide greater clarity and consistency in the application
of the regulations;
<bullet> Tailor performance standards to account for differences in
bank size and business models and local conditions;
<bullet> Tailor data collection and reporting requirements and use
existing data whenever possible;
<bullet> Promote transparency and public engagement;
<bullet> Confirm that CRA and fair lending responsibilities are
mutually reinforcing; and
<bullet> Promote a consistent regulatory approach that applies to
banks regulated by all three agencies.\7\
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\7\ The agencies have revised this objective for the final rule,
to recognize that the agencies currently have common regulations.
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The agencies believe that each objective is met through the
promulgation of this final rule. Additional discussion of, and
commenter feedback received regarding, the agencies' objectives can be
found in section III.B of this SUPPLEMENTARY INFORMATION.
This section provides a summary of the final rule and highlights
certain key elements and changes as compared to the proposal. For a
more detailed discussion, including the agencies' considerations of the
comments received, see sections III and IV of this SUPPLEMENTARY
INFORMATION.
Bank Asset Size Categories and Limited Purpose Banks
The final rule implements a revised regulatory framework for the
CRA that, like the current framework, is based on bank asset size and
business model. This tailoring of the framework recognizes the capacity
and resource differences among banks. Under the final rule, banks are
classified as either a large bank, an intermediate bank, a small bank,
or a limited purpose bank. Pursuant to the final rule: large banks are
those with assets of at least $2 billion as of December 31 in both of
the prior two calendar years; intermediate banks are those with assets
of at least $600 million as of December 31 in both of the prior two
calendar years and less than $2 billion as of December 31 in either of
the prior two calendar years; and small banks are those with assets of
less than $600 million as of December 31 in either of the prior two
calendar years. These asset-size thresholds will be adjusted annually
for inflation.
The final rule revises the definition of limited purpose bank to
include both those banks currently considered ``limited purpose banks''
and those currently considered ``wholesale banks,'' as those terms are
defined under the current regulation and were defined under the
proposal. Specifically, the final rule defines a limited purpose bank
as a bank that is not in the business of extending certain loans,
except on an incidental and accommodation basis, and for which a
designation as a limited purpose bank is in effect. The final rule
therefore does not reference ``wholesale banks'' because a separate
definition is no longer necessary. The agencies have also clarified
that limited purpose banks are not evaluated as small, intermediate, or
large banks.
Evaluation Framework
Overview. The final rule's performance evaluation framework
utilizes performance tests to evaluate a bank's performance in meeting
the credit needs of its entire community. In finalizing this evaluation
framework, the agencies seek to meet the objectives described above,
including: strengthening the achievement of the core purpose of the
statute; tailoring to account for differences in bank size, business
model, and local conditions; and adapting to changes in the banking
industry, including the rise of mobile and online banking. Depending on
a bank's asset size or limited purpose bank designation, the agencies
will evaluate banks under one or a combination of the following seven
performance tests: the Retail Lending Test; the Retail Services and
Products Test; the Community Development Financing Test; the Community
Development Services Test; the Intermediate Bank Community Development
Test; the Small Bank Lending Test; and the Community Development
Financing Test for Limited Purpose Banks. The agencies have also
retained the strategic plan option, with revisions, as an alternative
method for evaluation under the CRA.
The agencies will evaluate large banks under four performance
tests: the Retail Lending Test, the Retail Services and Products Test,
the Community Development Financing Test, and the Community Development
Services Test. The agencies will evaluate intermediate banks under the
Retail Lending Test and either the current community development test,
referred to in the final rule as the Intermediate Bank Community
Development Test, or, at the bank's option, the Community Development
Financing Test. The agencies will evaluate small banks under either the
current small bank test, referred to in the final rule as the Small
Bank Lending Test or, at the bank's option, the Retail Lending Test.
Finally, the agencies will evaluate limited purpose banks, under the
Community Development Financing Test for Limited Purpose Banks.
The final rule also provides that relevant activities of a bank's
operations subsidiaries or operating subsidiaries are included in a
bank's performance evaluation. Relevant activities of other affiliates
would be considered at a bank's option.
For each applicable performance test, the agencies will assign
conclusions reflecting the bank's performance in its facility-based
assessment areas, and in the case of the Retail Lending Test, certain
other geographic areas. In most instances, including for small banks
that opt to be evaluated under the Retail Lending Test, the agencies
will assign one of five conclusions to the bank: ``Outstanding'';
``High Satisfactory''; ``Low Satisfactory''; ``Needs to Improve''; or
``Substantial Noncompliance.'' For small banks evaluated under the
Small Bank Lending Test, the agencies will assign one of four
conclusions: ``Outstanding''; ``Satisfactory''; ``Needs to Improve'';
or ``Substantial Noncompliance.''
The conclusions assigned in connection with each of the applicable
performance tests are combined to develop a bank's CRA ratings. The
agencies may assign a bank one of the four ratings, as indicated in the
statute: ``Outstanding''; ``Satisfactory''; ``Needs
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to Improve''; or ``Substantial Noncompliance.''
For banks that are evaluated under more than one performance test,
specific weights are applied to each performance test conclusion, with
weighting varying by bank asset size. For large banks: the Retail
Lending Test is weighted at 40 percent; the Retail Services and
Products Test is weighted at 10 percent; the Community Development
Financing Test is weighted at 40 percent; and the Community Development
Services Test is weighted at 10 percent. Relative to the proposal, this
large bank weighting reflects a decrease in the percentages assigned to
the Retail Lending Test and the Retail Services and Products Test and a
resulting increase in the percentage assigned to the Community
Development Financing Test. For intermediate banks, each applicable
performance test is weighted at 50 percent.
As noted above, banks of all sizes will maintain the option to
elect to be evaluated under an approved strategic plan. Among other
revisions, the final rule updates the standards for obtaining approval
for such plans. The final rule clarifies the proposal to explain the
circumstances in which banks must include the performance tests that
would apply in the absence of a strategic plan, the modifications and
additions that banks may make to those tests, and the justifications
that banks must provide for their draft plans.
Retail Lending Test. The Retail Lending Test evaluates a bank's
record of helping to meet the credit needs of its entire community
through the bank's origination and purchase of home mortgage loans,
multifamily loans, small business loans, and small farm loans, as well
as through automobile lending if the bank is a majority automobile
lender. Specifically, the Retail Lending Test includes an evaluation of
how banks are serving low- and moderate-income individuals, small
businesses, small farms, and low- and moderate-income census tracts in
the bank's facility-based assessment areas and, as applicable, retail
lending assessment areas and outside retail lending areas. As noted
above, under the final rule, intermediate and large banks are required
to be evaluated under the Retail Lending Test, and small banks may opt
to be evaluated under this performance test.
The Retail Lending Test includes two sets of metrics, as well as
additional factors that are used to complement the use of metrics.
First, the Retail Lending Volume Screen measures the volume of a bank's
retail lending relative to its deposit base in a facility-based
assessment area and compares that ratio to a Retail Lending Volume
Threshold based on the aggregate ratio for all reporting banks with at
least one branch in the same facility-based assessment area.
Second, the agencies evaluate the geographic distribution and
borrower distribution of a bank's major product lines in its Retail
Lending Test Areas (facility-based assessment areas, retail lending
assessment areas, and outside retail lending area) using a series of
metrics and benchmarks. For example, for a bank's closed-end home
mortgage lending in a Retail Lending Test Area, the geographic
distribution analysis evaluates the bank's percentage of lending (1) in
low-income census tracts and (2) in moderate-income census tracts,
while the borrower distribution analysis evaluates the bank's
percentage of lending (3) to low-income borrowers and (4) to moderate-
income borrowers. Under the final rule, the agencies evaluate the
distribution of a large bank's major product lines in its facility-
based assessment areas, any retail lending assessment areas the bank is
required to delineate, and its outside retail lending area. For
intermediate banks, and small banks that opt to be evaluated under the
Retail Lending Test, the agencies evaluate the distribution of the
bank's major product lines in its facility-based assessment areas and
any outside retail lending area, if applicable. Regardless of the
geographic area in which a bank is evaluated, for most major product
lines, a bank's performance relative to the retail lending distribution
benchmarks is translated into a recommended conclusion using
performance ranges that establish the level of performance needed to
achieve a particular conclusion, such as ``High Satisfactory.''
In addition, in the final rule the agencies consider a list of
additional factors that are intended to account for circumstances in
which the retail lending distribution metrics and benchmarks may not
accurately or fully reflect a bank's retail lending performance, or in
which the benchmarks may not appropriately represent the credit needs
and opportunities in an area.
In response to commenter feedback, the agencies sought ways to
ensure that the final rule's Retail Lending Test appropriately balances
the agencies' objectives. For example, the agencies adjusted some of
the multipliers utilized as part of the Retail Lending Test to make
``Outstanding'' and ``High Satisfactory'' Retail Lending Test
supporting conclusions more attainable relative to the proposal, while
maintaining an appropriate degree of rigor. Moreover, as compared to
the proposal, the final rule reduces the number of product lines
potentially evaluated under the Retail Lending Test from six to three
(closed-end home mortgage loans, small business loans, and small farm
loans) for most banks. In addition, the agencies will only evaluate a
bank's automobile loans if automobile loans represent a majority of the
bank's retail lending, or if the bank opts to have its automobile loans
evaluated under the Retail Lending Test.
Retail Services and Products Test. The Retail Services and Products
Test utilizes a tailored approach to evaluate the availability of a
bank's retail banking services and retail banking products and the
responsiveness of those services and products to the credit needs of
the bank's entire community, including low- and moderate-income
individuals, low- and moderate-income census tracts, small businesses,
and small farms. Under the final rule, this performance test maintains
the overall approach set out in the NPR, with certain modifications,
and incorporates benchmarks to evaluate the availability of a bank's
branch and remote service facilities. In addition, the agencies will
evaluate the digital and other delivery systems of some banks.
Evaluation of the retail banking services of a large bank with
assets greater than $10 billion includes a review of the bank's branch
availability and services, remote service facilities (including
automated teller machines (ATMs)), and digital delivery systems and
other delivery systems. The agencies will also consider the digital
delivery systems and other delivery systems of large banks with assets
less than or equal to $10 billion if the bank does not operate any
branches or, for banks that operate at least one branch, at the bank's
option.
Evaluation of a bank's retail banking products includes a review of
the responsiveness of the bank's credit products and programs, and
availability and usage of responsive deposit products. Both deposit
products and credit products and programs are evaluated at the
institution level and, in a change from the proposal, are given only
positive consideration and may not negatively impact a bank's Retail
Services and Products Test conclusion. This aspect of the performance
test is designed to evaluate a bank's efforts to provide products that
are responsive to the needs of low- and moderate-income communities.
The agencies will not evaluate the availability and usage of responsive
deposit products in connection with large banks with assets
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less than or equal to $10 billion, unless the bank opts in.
Community Development Financing Test. The Community Development
Financing Test evaluates how well large banks and intermediate banks
that opt into the performance test meet the community development
financing needs in each facility-based assessment area, each State or
multistate metropolitan statistical area (MSA), as applicable, and for
the institution. The test is not assessed in retail lending assessment
areas.
The Community Development Financing Test includes the following
elements: (1) a community development financing metric used to evaluate
the dollar volume of a bank's community development loans and
investments relative to the bank's deposit base; (2) standardized
benchmarks to aid in evaluating performance; and (3) an impact and
responsiveness review to ensure consideration of community development
loans and investments that are particularly impactful or responsive.
The final rule also includes a metric for banks with assets greater
than $10 billion to measure the bank's community development
investments relative to deposits. This metric is intended to ensure a
focus on certain bank community development investments (including
Federal Low-Income Housing Tax Credit (LIHTC) and New Market Tax Credit
(NMTC) investments). This metric is applied at the institution level
and may only contribute positively to a bank's Community Development
Financing Test conclusion.
Community Development Services Test. The Community Development
Services Test considers the importance of community development
services in fostering partnerships among different stakeholders,
building capacity, and creating conditions for effective community
development, including in rural areas. The agencies will evaluate large
banks under this performance test in facility-based assessment areas,
in States, multistate MSAs, and nationwide.
Under the final rule, the evaluation includes a qualitative review
of relevant community development services data, and an impact and
responsiveness review to assess services that are particularly
responsive to community needs. After considering commenter feedback,
the performance test does not require a metric of community development
service hours per full-time employee for banks with assets greater than
$10 billion. Moreover, the final rule maintains the existing
requirement that volunteer services considered under this performance
test must be related to the provision of financial services or the
expertise of bank staff and must have a community development purpose.
The performance test will provide consideration for activities that
promote financial literacy for low- or moderate-income individuals,
households, and families, even if the activities benefit individuals,
households, and families of other income levels as well.
Geographic Areas in Which a Bank's Activities Are Considered
Facility-based assessment areas. As under the current CRA
regulations, the final rule maintains facility-based assessment areas
as the cornerstone of the CRA evaluation framework. The final rule
adopts the delineation requirements for facility-based assessment areas
mostly as set out in the proposal with clarifying changes.
Specifically, banks will continue to delineate facility-based
assessment areas in the MSAs or nonmetropolitan areas of States in
which the following facilities are located: main offices, branches, and
deposit-taking remote service facilities. As under the proposal, large
banks are required to delineate facility-based assessment areas
composed of whole counties, while intermediate and small banks will
continue to be permitted to delineate facility-based assessment areas
consisting of partial counties. The final rule continues to provide
that facility-based assessment areas may not reflect illegal
discrimination and may not arbitrarily exclude low- or moderate-income
census tracts.
Retail lending assessment areas. The final rule requires a large
bank to delineate a new type of assessment area, referred to as retail
lending assessment areas, in an MSA or the nonmetropolitan area of a
State in which the large bank has a concentration of closed-end home
mortgage or small business lending outside of its facility-based
assessment area(s). Large banks are evaluated under the Retail Lending
Test, but not the other performance tests, in retail lending assessment
areas. Relative to the proposal, the final rule tailors the retail
lending assessment area requirement by exempting large banks that
conduct more than 80 percent of their retail lending within facility-
based assessment areas.
Upon consideration of commenter feedback regarding the retail
lending assessment area proposal, the final rule increases, relative to
the proposal, the loan count thresholds that trigger the retail lending
assessment area delineation requirement to at least 150 closed-end home
mortgage loans or at least 400 small business loans in each year of the
prior two calendar years. The final rule also simplifies the evaluation
of a large bank's retail lending performance by reducing the number of
product lines potentially evaluated in a retail lending assessment area
from six to two product lines, and only evaluating a product line if
the bank exceeds the relevant loan count threshold.
Outside retail lending areas. Under the final rule, the agencies
will evaluate the retail lending performance of all large banks,
certain intermediate banks, and certain small banks that opt to be
evaluated under the Retail Lending Test in the outside retail lending
area, which consists of the nationwide area outside of the bank's
facility-based assessment areas and applicable retail lending
assessment areas, excluding certain nonmetropolitan counties.
Evaluation in these areas is designed to facilitate a comprehensive
evaluation of a bank's retail lending to low- and moderate-income
individuals and communities under the Retail Lending Test, and to adapt
to changes in the banking industry, such as mobile and online banking.
For an intermediate bank or a small bank that opts to be evaluated
under the Retail Lending Test, the agencies evaluate the bank's retail
lending performance in the outside retail lending area on a mandatory
basis if the bank conducts a majority of its retail lending outside of
its facility-based assessment areas. If the intermediate or small bank
does not conduct a majority of its retail lending outside of its
facility-based assessment areas, the bank may opt to have its retail
lending in its outside retail lending area evaluated.
Areas for eligible community development activities. Like the
proposal, the final rule provides that all banks will receive
consideration for any qualified community development loans,
investments, or services, regardless of location. In assessing a large
bank's Community Development Financing Test performance, the final rule
includes a focus on performance within facility-based assessment areas.
Specifically, when developing conclusions for a State, multistate MSA,
or for the institution overall, the final rule combines two components
through a weighted average calculation: (1) performance within the
bank's facility-based assessment areas in the State, multistate MSA, or
for the institution overall; and (2) performance across the entire
State, multistate MSA, and for the institution. The weights of the two
[[Page 6578]]
components are based on the percentage of a bank's retail lending and
deposits inside its facility-based assessment areas. For example, for a
bank with a relatively low percentage of retail lending and deposits
inside its facility-based assessment areas, the bank's performance
within its facility-based assessment areas receives less weight than
its performance across the entire State, multistate MSA, or nationwide
area. In this way, the Community Development Financing Test recognizes
differences in bank business models.
Categories of Community Development
Updated community development definition. Under the current CRA
regulations, in evaluating a bank's CRA performance, banks may receive
community development consideration for community development loans,
investments, and services under various tests. The final rule updates
the definition of community development to provide banks with
additional clarity regarding the loans, investments, and services that
the agencies have determined support community development. The
agencies believe these activities are responsive to the needs of low-
and moderate-income individuals and communities, designated distressed
or underserved nonmetropolitan areas, Native Land Areas,\8\ small
businesses, and small farms. Specifically, the agencies have defined
the following eleven community development categories in the final
rule:
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\8\ The final rule defines ``Native Land Areas'' in final Sec.
__.12.
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<bullet> Affordable housing, which has five components: (1) rental
housing in conjunction with a government affordable housing plan,
program, initiative, tax credit, or subsidy; (2) multifamily rental
housing with affordable rents; (3) one-to-four family rental housing
with affordable rents in a nonmetropolitan area; (4) affordable owner-
occupied housing for low- or moderate-income individuals; and (5)
mortgage-backed securities.
<bullet> Economic development, which includes loans, investments,
and services undertaken in conjunction or in syndication with
government programs; loans, investments, and services provided to
intermediaries; and other forms of assistance to small businesses and
small farms. Unlike the proposal, this category includes direct loans
to small businesses and small farms in conjunction or in syndication
with government programs that meet a size and purpose test.
<bullet> Community supportive services, which includes activities
that assist, benefit, or contribute to the health, stability, or well-
being of low- or moderate-income individuals, and replaces the current
rule's ``community services targeted to low- or moderate-income
individuals'' category.
<bullet> Six categories of place-based activities, which replace
the revitalization and stabilization activities component of the
current rule. Each of the final place-based categories adopts a focus
on targeted geographic areas and includes common place-based
eligibility criteria that must be met. The six place-based categories
are:
[cir] Revitalization or stabilization activities;
[cir] Essential community facilities;
[cir] Essential community infrastructure;
[cir] Recovery activities that promote the recovery of a designated
disaster area;
[cir] Disaster preparedness and weather resiliency activities; and
[cir] Qualifying activities in Native Land Areas.
<bullet> Activities with minority depository institutions (MDIs),
women's depository institutions (WDIs), low-income credit unions
(LICUs), and community development financial institutions (CDFIs).
<bullet> Financial literacy, which retains the proposed approach of
qualifying activities assisting individuals, families, and households
of all income levels, including low- or moderate-income individuals,
families, and households.
Illustrative list and confirmation process. To promote clarity and
consistency, the final rule also provides that the agencies will issue,
maintain, and periodically update a publicly available illustrative
list of non-exhaustive examples of loans, investments, and services
that qualify for community development consideration. In addition, the
final rule includes a process through which banks can confirm with the
appropriate Federal financial supervisory agency whether a particular
loan, investment, or service is eligible for community development
consideration.\9\
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\9\ The CRA defines ``appropriate Federal financial supervisory
agency'' as (1) the Comptroller of the Currency with respect to
national banks and Federal savings associations (the deposits of
which are insured by the Federal Deposit Insurance Corporation); (2)
the Board of Governors of the Federal Reserve System with respect to
State chartered banks which are members of the Federal Reserve
System, bank holding companies, and savings and loan holding
companies; (3) the Federal Deposit Insurance Corporation with
respect to State chartered banks and savings banks which are not
members of the Federal Reserve System and the deposits of which are
insured by the Corporation, and State savings associations (the
deposits of which are insured by the Federal Deposit Insurance
Corporation). 12 U.S.C. 2902(1).
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Impact and responsiveness review. To promote clarity and
consistency in the final rule, the agencies will evaluate the extent to
which a bank's community development loans, investments, and services
are impactful and responsive in meeting community development needs,
through the application of a non-exhaustive list of review factors.
Such factors were referred to as impact review factors in the agencies'
proposal but are referred to as impact and responsiveness factors in
the final rule.
Data Collection, Maintenance, and Reporting
Consistent with the proposal, the agencies are not imposing any new
data collection and reporting requirements for small and intermediate
banks. For large banks, the final rule leverages existing data where
possible and introduces updated data collection, maintenance, and
reporting requirements to fill gaps in the current regulation and
facilitate implementation of the final rule. For example, the final
rule requires certain large banks to collect, maintain, and report data
that would enable the agencies both to implement the metrics and
benchmarks included in the Retail Lending Test and Community
Development Financing Test, and to evaluate activities under the Retail
Services and Products Test. These data requirements are intended to
support greater clarity and consistency in the application of the CRA
regulations and are tailored by bank size, such as by introducing
certain data requirements only for those large banks with assets over
$10 billion dollars.
The final rule requires the agencies to publish on their respective
websites certain information related to the distribution by borrower
income level, race, and ethnicity of a large bank's home mortgage loan
originations and applications in each of the bank's assessment areas.
This disclosure would leverage existing data available under the Home
Mortgage Disclosure Act (HMDA).\10\
---------------------------------------------------------------------------
\10\ 12 U.S.C. 2801 et seq.
---------------------------------------------------------------------------
Transition
Although the effective date of the final rule is April 1, 2024, the
applicability date for the majority of the provisions is January 1,
2026. Specifically, the following provisions of the final rule will
become applicable on January 1, 2026: final Sec. Sec. __.12 through
__.15; final Sec. Sec. __.17 through __.30; final Sec. __.42(a); the
data collection and maintenance requirements in final Sec. __.42(c)
through (f); and appendices A through
[[Page 6579]]
F. Banks will have until January 1, 2027, to comply with the reporting
requirements of Sec. __.42(b) through (f), with data reporting
requirements every April 1 beginning in 2027. In final Sec. __.51, the
agencies have also included transition provisions relating to:
applicability of the current CRA regulations; HMDA data disclosures;
CRA consideration of eligible loans, investments, services, or
products; strategic plans; and a particular ratings standard relating
to minimum performance requirements applicable to large banks. Until
the applicability dates for these provisions, banks will follow the
current CRA regulations, included as appendix G to the revised CRA
regulations.
Transition to Section 1071 Data
As discussed in the section-by-section analysis of Sec. Sec.
__.12, __.22, and __.42, the agencies have included amendments to
transition to the use of Consumer Financial Protection Bureau's (CFPB)
final rule under section 1071 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) \11\ (Section 1071 Final Rule)
\12\ small business and small farm lending data (section 1071 data)
once the data are available. The section 1071 data would replace CRA
small business and small farm lending data required to be collected,
maintained, and reported pursuant to final Sec. __.42(a)(1) and
(b)(1).
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\11\ Public Law 111-203, 124 Stat. 1376 (2010).
\12\ 88 FR 35150 (May 31, 2023); see also 12 CFR part 1002.
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With respect to the agencies' transition to using section 1071
data, as indicated in the section-by-section analysis of Sec. __.12,
the agencies have removed proposed references to section 1071 data in
the final rule's regulatory text. Instead, each agency is adopting
separate agency-specific amendatory text that provides for a transition
to section 1071 data. These transition amendments implement the intent
of the agencies articulated in the proposal to leverage section 1071
data while accounting for the current uncertainty surrounding the
availability of that data. Specifically, when effective, these
transition amendments will add appropriate references to the section
1071 rulemaking, remove references to Call Report-based small business
and small farm data, and make other corresponding changes to the final
rule regulatory text.
The agencies are not including an effective date for these section
1071-related transition amendments in the final rule. Instead, once the
availability of section 1071 data is clarified, the agencies will take
steps to provide appropriate notice in the Federal Register of the
effective date of the transition amendments. The agencies expect that
the effective date will be on January 1 of the relevant year to align
with the final rule's data collection and reporting, benchmark
calculations, and performance analysis, which all are based on whole
calendar years.
Implementation
The agencies expect to issue supervisory guidance, including
examination procedures, to promote clarity and transparency regarding
implementation of the final rule. In addition, the agencies will
conduct outreach and training to facilitate implementation of the final
rule. For instance, the agencies expect to develop data reporting
guides and technical assistance materials to assist banks in
understanding supervisory expectations with respect to the final rule's
data reporting requirements. In addition, the agencies expect to
develop templates, such as for the submission of digital and other
delivery systems data as well as for responsive deposit products data,
to increase consistency, and will continue to explore other tools to
improve efficiency and reduce burden. The agencies are also planning to
develop data tools for banks and the public that will increase
familiarity with the operation of the performance tests and allow for
monitoring of performance relative to benchmarks based on historical
data.
Each of the topics highlighted through this Summary of the Final
Rule are discussed in greater detail in the section-by-section analysis
in section IV of this SUPPLEMENTARY INFORMATION. The agencies are
setting forth in this SUPPLEMENTARY INFORMATION the final rule using
common regulation text for ease of review. The agencies have also
included agency-specific amendatory text \13\ where necessary to
account for differing agency authority and terminology.\14\
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\13\ The OCC notes that current 12 CFR part 25 includes subpart
E, Prohibition Against Use of Interstate Branches Primarily for
Deposit Production. This subpart implements section 109 of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
12 U.S.C. 1835a, which only applies to certain national banks and
Federal branches of a foreign bank. As proposed, this final rule
redesignates this subpart as subpart F but does not amend it.
\14\ In addition to the changes described in this SUPPLEMENTARY
INFORMATION, the agencies have made conforming and technical changes
throughout the final rule. The agencies will evaluate at a later
date other rules that cross-reference to the CRA regulations to
identify conforming changes that may be appropriate.
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II. Background
A. General Statutory Background
The CRA was passed by Congress as part of the Housing and Community
Development Act of 1977 \15\ and is designed to encourage regulated
banks to help meet the credit needs of the communities in which they
are chartered. Specifically, Congress found 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 a
continuing and affirmative obligation to help meet the credit needs of
the local communities in which they are chartered.\16\
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\15\ Public Law 95-128, 91 Stat. 1111 (Oct. 12, 1977).
\16\ 12 U.S.C. 2901(a).
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The CRA requires the agencies to ``assess the institution's record
of meeting the credit needs of its entire community, including low- and
moderate-income neighborhoods, consistent with the safe and sound
operation of such institution.'' \17\ Upon completing this assessment,
the statute requires the agencies to ``prepare a written evaluation of
the institution's record of meeting the credit needs of its entire
community, including low- and moderate-income neighborhoods.'' \18\ The
statute further provides that each agency must consider a bank's CRA
performance ``in its evaluation of an application for a deposit
facility by such institution.'' \19\
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\17\ 12 U.S.C. 2903(a)(1).
\18\ 12 U.S.C. 2906(a).
\19\ 12 U.S.C. 2903(a)(2).
---------------------------------------------------------------------------
Since its enactment, Congress has amended the CRA several times,
including through: the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 \20\ (which required public disclosure of a
bank's CRA written evaluation and rating); the Federal Deposit
Insurance Corporation Improvement Act of 1991 \21\ (which required the
inclusion of a bank's CRA examination data in the determination of its
CRA rating); the Resolution Trust Corporation Refinancing,
Restructuring, and Improvement Act of 1991 (which permits the agencies
to provide favorable consideration where the bank has donated, sold on
favorable terms, or
[[Page 6580]]
made available rent-free any branch of the bank ``located in any
predominantly minority neighborhood to any minority depository
institution or women's depository institution''); \22\ the Housing and
Community Development Act of 1992 \23\ (which included assessment of
the record of nonminority-owned and nonwomen-owned banks in cooperating
with minority-owned and women-owned banks and LICUs); the Riegle-Neal
Interstate-Banking and Branching Efficiency Act of 1994 \24\ (which (1)
required an agency to consider an out-of-State national bank's or State
bank's CRA rating when determining whether to allow interstate
branches, and (2) prescribed certain requirements for the contents of
the written CRA evaluation for banks with interstate branches); and the
Gramm-Leach-Bliley Act of 1999 \25\ (which, among other things,
provided regulatory relief for smaller banks by reducing the frequency
of their CRA examinations).
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\20\ Public Law 101-73, 103 Stat. 183 (Aug. 9, 1989).
\21\ Public Law 102-242, 105 Stat. 2236 (Dec. 19, 1991).
\22\ Public Law 102-233, 105 Stat. 1761 (Dec. 12, 1991).
\23\ Public Law 102-550, 106 Stat. 3874 (Oct. 28, 1992).
\24\ Public Law 103-328, 108 Stat. 2338 (Sept. 29, 1994).
\25\ Public Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).
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Additionally, Congress directed the agencies to publish regulations
to carry out the CRA's purposes.\26\ In 1978, the agencies promulgated
the first CRA regulations, which included evidence of prohibited
discriminatory or other illegal credit practices as a performance
factor as discussed further in the next section.\27\ Since then, the
agencies have together significantly revised and sought to clarify
their CRA regulations twice--in 1995 \28\ and 2005 \29\--with the most
substantive interagency update occurring in 1995. In addition, the
agencies have periodically jointly published the Interagency Questions
and Answers Regarding Community Reinvestment (Interagency Questions and
Answers) \30\ to provide guidance on the CRA regulations.
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\26\ 12 U.S.C. 2905.
\27\ 43 FR 47144 (Oct. 12, 1978). Congress also charged, in
addition to the agencies, the Office of Thrift Supervision (OTS) and
its predecessor agency, the Federal Home Loan Bank Board, with
implementing the CRA. The OTS had CRA rulemaking and supervisory
authority for all savings associations. Pursuant to Title III of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public
Law 111-203, 124 Stat. 1376, 1522 (2010) (Dodd-Frank Act), the OTS's
CRA rulemaking authority for all savings associations transferred to
the OCC and the OTS's CRA supervisory authority for State savings
associations transferred to the FDIC. As a result, the OCC's CRA
regulation applies to both State and Federal savings associations,
in addition to national banks, and the FDIC enforces the OCC's CRA
regulations with respect to State savings associations.
\28\ 60 FR 22190 (May 4, 1995).
\29\ 70 FR 44268 (Aug. 2, 2005).
\30\ See 81 FR 48506 (July 25, 2016). ``Interagency Questions
and Answers'' refers to the ``Interagency Questions and Answers
Regarding Community Reinvestment'' guidance in its entirety. ``Q&A''
refers to an individual question and answer within the Interagency
Questions and Answers.
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B. CRA, Illegal Discrimination, and Fair Lending
The CRA was one of several laws enacted in the 1960s and 1970s to
address fairness and financial inclusion in access to housing and
credit.\31\ During this period Congress passed the Fair Housing Act
\32\ to prohibit discrimination in the sale or rental of housing,\33\
and the Equal Credit Opportunity Act (ECOA) in 1974 \34\ (amended in
1976), to prohibit creditors from discriminating against an applicant
in any aspect of a credit transaction on the basis of race, color,
religion, national origin, sex, marital status, and age, because all or
part of the applicant's income derives from any public assistance
program, or because the applicant has in good faith exercised any right
under the Consumer Credit Protection Act.\35\ These fair lending, fair
housing, and other similar laws provide the legal basis under Federal
law for prohibiting discriminatory lending practices by creditors based
on race, ethnicity, and other protected characteristics.\36\
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\31\ See, e.g., Board, Gov. Lael Brainard, ``Strengthening the
Community Reinvestment Act by Staying True to Its Core Purpose''
(Jan. 8, 2020), <a href="https://www.federalreserve.gov/newsevents/speech/brainard20200108a.htm">https://www.federalreserve.gov/newsevents/speech/brainard20200108a.htm</a> (``The CRA was one of several landmark pieces
of legislation enacted in the wake of the civil rights movement
intended to address inequities in the credit markets.''). See also
123 Cong. Rec. 17630 (1977) (statement of Sen. Proxmire) (discussing
enactment of CRA and addressing banks taking deposits from a
community without reinvesting them in that community).
\32\ 42 U.S.C. 3601 et seq.
\33\ 42 U.S.C. 3604 through 3606.
\34\ 15 U.S.C. 1691 et seq.
\35\ 15 U.S.C. 1691(a).
\36\ See Federal Financial Institutions Examination Council
(FFIEC), ``Interagency Fair Lending Examination Procedures'' (Aug.
2009), <a href="https://www.ffiec.gov/pdf/fairlend.pdf">https://www.ffiec.gov/pdf/fairlend.pdf</a>.
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The agencies have long recognized that CRA and fair lending are
mutually reinforcing. For example, starting with the original CRA
regulations issued in 1978, the agencies have taken evidence of
discrimination or other illegal credit practices into account when
evaluating a bank's CRA performance.\37\ Other provisions in the
original 1978 regulations similarly expressed the agencies' view that
the exclusion of certain segments of a bank's community is ``contrary
to'' and ``in conflict with'' the CRA's purpose of requiring banks to
meet the credit needs of their entire communities.\38\ Specifically,
the agencies provided for ``assessment of an institution's lending
patterns to see if the institution discriminates between geographic
areas or excludes qualified borrowers from low- and moderate-income
neighborhoods.'' \39\ Factors identified as warranting unfavorable
treatment were ``practices intended to discourage applications,''
evidence of ``violations of the Equal Credit Opportunity Act and the
Fair Housing Act,'' and ``failure to provide usual services--such as
not accepting mortgage applications--at certain branches.\40\
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\37\ See 43 FR 47144, 47146 (Oct. 12, 1978); current appendix A,
paragraph (a)(1).
\38\ See 43 FR 47144, 47146 (Oct. 12, 1978).
\39\ Id.
\40\ Id.
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C. Overview of Current CRA Regulations and Guidance for Performance
Evaluations
CRA Performance Evaluations
The current CRA regulations provide different methods to evaluate a
bank's CRA performance depending on the asset size and business
strategy of the bank.\41\ Under the current framework:
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\41\ See generally current 12 CFR __.21 through __.27. The
agencies annually adjust the CRA asset-size thresholds based on the
annual percentage change in a measure of the Consumer Price Index
for Urban Wage Earners and Clerical Workers. The current bank asset-
size thresholds set forth in this SUPPLEMENTARY INFORMATION are
accurate through December 31, 2023.
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[cir] Small banks--currently, those with assets of less than $376
million as of December 31 of either of the prior two calendar years--
are evaluated under a lending test and may receive an ``Outstanding''
rating based only on their retail lending performance. Qualified
investments, services, and delivery systems that enhance credit
availability in a bank's assessment areas may be considered for an
``Outstanding'' rating, but only if the bank meets or exceeds the
lending test criteria in the small bank performance standards.
[cir] Intermediate small banks--currently, those with assets of at
least $376 million as of December 31 of both of the prior two calendar
years and less than $1.503 billion as of December 31 of either of the
prior two calendar years--are evaluated under the lending test for
small banks and a community development test. The intermediate small
bank community development test evaluates all community development
activities together.
[cir] Large banks--currently, those with assets of at least $1.503
billion as of December 31 of both of the prior two calendar years--are
evaluated under separate lending, investment, and
[[Page 6581]]
service tests. The lending and service tests consider both retail and
community development activities, and the investment test focuses on
qualified community development investments. To facilitate the
agencies' CRA analysis, large banks are required to report annually
certain data on community development loans, small business loans, and
small farm loans (small banks and intermediate small banks are not
required to report these data unless they opt into being evaluated
under the large bank lending test).
[cir] Designated wholesale banks (those engaged in only incidental
retail lending) and limited purposes banks (those offering a narrow
product line to a regional or broader market) are evaluated under a
standalone community development test.
[cir] Banks of any size may elect to be evaluated under a strategic
plan that sets out measurable, annual goals for lending, investment,
and service activities in order to achieve a ``Satisfactory'' or an
``Outstanding'' rating. A strategic plan must be developed with
community input and approved by the appropriate Federal financial
supervisory agency.
The agencies also consider applicable performance context
information to develop their analysis and conclusions when conducting
CRA examinations. Performance context comprises a broad range of
economic, demographic, and bank- and community-specific information
that examiners review to calibrate a bank's CRA evaluation to its
communities.
Assessment Areas
The current CRA regulations require a bank to delineate one or more
assessment areas in which the bank's record of meeting its CRA
obligations is evaluated.\42\ The regulations require a bank to
delineate assessment areas generally consisting of one or more MSAs or
metropolitan divisions, or one or more contiguous political
subdivisions \43\ in which the bank has its main office, branches, and
deposit-taking ATMs, as well as the surrounding geographies (i.e.,
census tracts) \44\ in which the bank has originated or purchased a
substantial portion of its loans (including home mortgage loans, small
business and small farm loans, and any other loans the bank chooses,
such as consumer loans on which the bank elects to have its performance
assessed).
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\42\ See current 12 CFR __.41.
\43\ Political subdivisions include cities, counties, towns,
townships, and Indian reservations. See Q&A Sec. __.41(c)(1)--1.
\44\ See current 12 CFR __.12(k).
---------------------------------------------------------------------------
The statute instructs the agencies to assess a bank's record of
meeting the credit needs of its ``entire community, including low- and
moderate-income neighborhoods, consistent with the safe and sound
operation of such institution, and . . . [to] take such record into
account in its evaluation of an application for a deposit facility by
such institution.'' \45\ The statute does not prescribe the delineation
of assessment areas, but they are an important aspect of the regulation
because the agencies use assessment areas to determine what constitutes
a bank's ``community'' for purposes of the evaluation of a bank's CRA
performance.
---------------------------------------------------------------------------
\45\ 12 U.S.C. 2903(a).
---------------------------------------------------------------------------
Qualifying Activities
The CRA regulations and the Interagency Questions and Answers
provide detailed information, including applicable definitions and
descriptions, respectively, regarding activities that are eligible for
CRA consideration in the evaluation of a bank's CRA performance. Banks
that are evaluated under a performance test that includes a review of
their retail activities are assessed in connection with retail lending
activity (e.g., home mortgage loans, small business loans, small farm
loans, and consumer loans) \46\ and, where applicable, retail banking
service activities (e.g., the current distribution of a bank's branches
in geographies of different income levels, and the availability and
effectiveness of the bank's alternative systems for delivering banking
services to low- and moderate-income geographies and individuals).\47\
---------------------------------------------------------------------------
\46\ See current 12 CFR __.12(j), (l), (v), and (w).
\47\ See generally current 12 CFR __.21 through __.27; see also
current 12 CFR __.24(d).
---------------------------------------------------------------------------
Banks evaluated under a performance test that includes a review of
their community development activities are assessed with respect to
community development lending, qualified investments, and community
development services, which must have a primary purpose of community
development.\48\
---------------------------------------------------------------------------
\48\ See current 12 CFR __.12(g) through (i) and (t); see also
current 12 CFR __.21 through __.27.
---------------------------------------------------------------------------
Guidance for Performance Evaluations
In addition to information included in their CRA regulations, the
agencies also provide information to the public regarding how CRA
performance tests are applied, where CRA activities are considered, and
what activities are eligible through publicly available CRA performance
evaluations,\49\ the Interagency Questions and Answers, interagency CRA
examination procedures,\50\ and interagency instructions for writing
performance evaluations.\51\
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\49\ See, e.g., Board ``Search: Evaluations & Ratings (Federal
Reserve Supervised Banks),'' <a href="https://www.federalreserve.gov/apps/CRAPubWeb/CRA/BankRating">https://www.federalreserve.gov/apps/CRAPubWeb/CRA/BankRating</a>; FDIC, ``Community Reinvestment Act (CRA)
Performance Ratings,'' <a href="https://crapes.fdic.gov/">https://crapes.fdic.gov/</a>; OCC, ``CRA
Performance Evaluations,'' <a href="https://occ.gov/publications-and-resources/tools/index-cra-search.html">https://occ.gov/publications-and-resources/tools/index-cra-search.html</a>.
\50\ See, e.g., FFIEC, ``Community Reinvestment Act: CRA
Examinations,'' <a href="https://www.ffiec.gov/cra/examinations.htm">https://www.ffiec.gov/cra/examinations.htm</a>.
\51\ Id.
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D. Stakeholder Feedback and Recent Agency Rulemaking Efforts
The financial services industry has undergone transformative
changes since the CRA was enacted, including the removal of national
bank interstate branching restrictions and the expanded role of mobile
and online banking. Prior to publishing the NPR, and to better
understand how these developments impact both consumer access to
banking products and services and a bank's CRA performance, the
agencies sought, received, and reviewed feedback from the banking
industry, community groups, academics, and other stakeholders on
several occasions.
Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA)
From 2013 to 2016, the agencies solicited feedback on the CRA as
part of the EGRPRA review process.\52\ Stakeholders raised issues
related to: assessment area definitions; incentives for banks to serve
low- and moderate-income, unbanked, underbanked, and rural communities;
regulatory burdens associated with recordkeeping and reporting
requirements, and asset thresholds for the various CRA examination
methods; the need for clarity regarding performance measures and better
examiner training to ensure consistency and rigor in examinations; and
refinement of CRA ratings methodology.\53\
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\52\ See, e.g., 80 FR 7980 (Feb. 13, 2015).
\53\ See 82 FR 15900 (Mar. 30, 2017).
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OCC CRA Advance Notice of Proposed Rulemaking and OCC and Federal
Reserve Outreach Sessions
On September 5, 2018, the OCC published an advance notice of
proposed rulemaking (ANPR) to solicit ideas for a new CRA regulatory
framework.\54\ More than 1,500 comment letters were submitted in
response. The
[[Page 6582]]
OCC held more than 40 meetings and outreach events after its ANPR. To
augment that input, the Board and the Federal Reserve Banks held about
30 outreach meetings with representatives of banks, community
organizations, and the FDIC and OCC.\55\
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\54\ See 83 FR 45053 (Sept. 5, 2018).
\55\ For a summary of the Federal Reserve outreach session
feedback, see ``Perspectives from Main Street: Stakeholder Feedback
on Modernizing the Community Reinvestment Act'' (June 2019), <a href="https://www.federalreserve.gov/publications/files/stakeholder-feedback-on-modernizing-the-community-reinvestment-act-201906.pdf">https://www.federalreserve.gov/publications/files/stakeholder-feedback-on-modernizing-the-community-reinvestment-act-201906.pdf</a>.
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OCC-FDIC CRA Notice of Proposed Rulemaking and OCC CRA Final Rule
On December 12, 2019, the FDIC and the OCC issued a joint notice of
proposed rulemaking to revise and update their CRA regulations.\56\ In
response, the FDIC and the OCC received over 7,500 comment letters.
---------------------------------------------------------------------------
\56\ 85 FR 1204 (Jan. 9, 2020).
---------------------------------------------------------------------------
On May 2020, the OCC issued a CRA final rule (OCC 2020 CRA Final
Rule), retaining the most fundamental elements of the joint proposal
but also making adjustments to reflect stakeholder input.\57\ The OCC
deferred establishing the metrics-framework for evaluating banks' CRA
performance until it was able to assess additional data,\58\ with the
final rule having an October 1, 2020, effective date and January 1,
2023, and January 1, 2024, compliance dates for certain provisions.\59\
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\57\ 85 FR 34734 (June 5, 2020).
\58\ See OCC, News Release 2020-63, ``OCC Finalizes Rule to
strengthen and Modernize Community Reinvestment Act Regulations''
(May 20, 2020), <a href="https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-63.html">https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-63.html</a>; see also 85 FR 34736.
\59\ 85 FR 34784.
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Board CRA Advance Notice of Proposed Rulemaking
On September 21, 2020, the Board issued a CRA ANPR (Board CRA ANPR)
requesting public comment on an approach to modernize the CRA
regulations by strengthening, clarifying, and tailoring the regulations
to reflect the current banking landscape and better meet the core
purpose of the CRA.\60\ The Board CRA ANPR sought feedback on ways to
evaluate how banks meet the needs of low- and moderate-income
communities and address inequities in credit access. The Board received
over 600 comment letters in response.
---------------------------------------------------------------------------
\60\ 85 FR 66410 (Oct. 19, 2020).
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Interagency Statement and Other Developments
On July 20, 2021, the agencies issued an interagency statement
indicating their commitment to work collectively to, in a consistent
manner, strengthen and modernize their CRA regulations.\61\ On December
15, 2021, the OCC issued a final rule, effective January 1, 2022, to
rescind the OCC 2020 CRA Final Rule and replace it with CRA regulations
based on those that the agencies jointly issued in 1995, as amended.
The OCC's final rule also integrated the OCC's CRA regulation for
savings associations into its national bank CRA regulation at 12 CFR
part 25.\62\
---------------------------------------------------------------------------
\61\ See ``Interagency Statement on Community Reinvestment Act,
Joint Agency Action'' (July 20, 2021), <a href="https://www.occ.gov/news-issuances/news-releases/2021/nr-ia-2021-77.html">https://www.occ.gov/news-issuances/news-releases/2021/nr-ia-2021-77.html</a> (OCC); <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210720a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210720a.htm</a>
(Board); <a href="https://www.fdic.gov/news/press-releases/2021/pr21067.html">https://www.fdic.gov/news/press-releases/2021/pr21067.html</a>
(FDIC).
\62\ 86 FR 71328 (Dec. 15, 2021).
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E. The Agencies' Proposal
Community development definitions. The NPR included a proposal to
revise the community development definitions to clarify eligibility
criteria for a broad range of community development activities and
incorporate certain guidance currently provided through the Interagency
Questions and Answers. The agencies also proposed using a primary
purpose standard for determining eligibility of community development
activities, with pro rata consideration for certain affordable housing
activities.
Qualifying activities confirmation and illustrative list of
community development activities. The agencies proposed to maintain a
publicly available illustrative, non-exhaustive list of community
development activities eligible for CRA consideration, which the
agencies would periodically update. In addition, the agencies proposed
a process, open to banks, for confirming eligibility of community
development activities in advance.
Impact review of community development activities. To promote
clearer and more consistent evaluation procedures, the agencies
proposed to include impact and responsiveness factors (referred to in
the NPR as impact review factors) in the regulation. The impact review
factors would inform the agencies' evaluation of the impact and
responsiveness of a bank's activities under the proposed community
development tests.
Assessment areas and areas for eligible community development
activity. The agencies offered a series of proposals on delineating
facility-based assessment areas for main offices, branches, and
deposit-taking remote service facilities (to include ATMs). The NPR
sought to maintain facility-based assessment areas as the cornerstone
of the CRA evaluation framework. Under the proposal, large banks would
delineate assessment areas comprised of full counties, metropolitan
divisions, or MSAs. Intermediate and small banks could continue to
delineate partial county facility-based assessment areas, consistent
with current practice.
The agencies also proposed that large banks would delineate retail
lending assessment areas where the bank has concentrations of home
mortgage and/or small business lending outside of its facility-based
assessment areas. Under that aspect of the proposal, a large bank would
delineate retail lending assessment areas where it had an annual
lending volume of at least 100 home mortgage loan originations or at
least 250 small business loan originations in an MSA or nonmetropolitan
area of a State for two consecutive years.
The agencies also proposed to allow banks to receive CRA credit for
any qualified community development activity, regardless of location,
although performance within facility-based assessment areas would be
emphasized.
Performance tests, standards, and ratings in general. The agencies
proposed an evaluation framework that would include a Retail Lending
Test, a Retail Services and Products Test, a Community Development
Financing Test, and a Community Development Services Test. Under the
proposal, large banks would be evaluated under all four tests.
Intermediate banks would be evaluated under the Retail Lending Test and
the status quo community development test, unless they opted into the
Community Development Financing Test. Small banks would be evaluated
under the status quo small bank lending test, unless they opted into
the Retail Lending Test. Wholesale and limited purpose banks would be
evaluated under a tailored version of the Community Development
Financing Test.
Under this proposed framework, large banks would be banks that had
average quarterly assets, computed annually, of at least $2 billion in
both of the prior two calendar years; intermediate banks would be banks
that had average quarterly assets, computed annually, of at least $600
million in both of the prior two calendar years and less than $2
billion in either of the prior two calendar years; and small banks
would be banks that had average quarterly assets, computed annually, of
less than $600 million in either of the prior two calendar years.\63\
The agencies also
[[Page 6583]]
proposed adding a new definition of ``operations subsidiary'' to the
Board's CRA regulation and ``operating subsidiary'' to the FDIC's and
OCC's CRA regulations to identify those bank affiliates whose
activities would be required to be attributed to a bank's CRA
performance (together, bank subsidiaries). The agencies proposed to
maintain the current flexibilities that would allow a bank to choose to
include or exclude the activities of other bank affiliates that are not
considered bank subsidiaries. The NPR also discussed performance
context, and the requirement for activity in accordance with safe and
sound operations.
---------------------------------------------------------------------------
\63\ Of particular relevance to the agencies' CRA regulations,
the SBA revised the size standards applicable to small commercial
banks and savings institutions, respectively, from $600 million to
$750 million, based upon the average assets reported on such a
financial institution's four quarterly financial statements for the
preceding year. The final rule had a May 2, 2022, effective date.
See 87 FR 18627, 18830 (Mar. 31, 2022).
---------------------------------------------------------------------------
Retail Lending Test product categories and major product lines. The
agencies proposed categories and standards for determining when a
bank's retail lending product lines are evaluated under the proposed
Retail Lending Test. The agencies proposed the following retail lending
product line categories: closed-end home mortgage, open-end home
mortgage, multifamily, small business, and small farm lending. The
agencies also proposed including automobile lending as an eligible
retail lending product line. In addition, the agencies proposed a 15
percent major product line standard to determine when a retail lending
product line would be evaluated.
Retail Services and Products Test. The agencies proposed to
evaluate large banks under the Retail Services and Products Test, which
would use a predominantly qualitative approach, incorporating
quantitative measures as guidelines, as applicable. The agencies
proposed that the evaluation of digital and other delivery systems
would be required for large banks with assets of over $10 billion, and
not required for large banks with assets of $10 billion or less.
Furthermore, the credit products and deposit products part of the
proposed Retail Services and Products Test aimed to evaluate a bank's
efforts to offer products that are responsive to the needs of low- and
moderate-income communities. The agencies proposed that the evaluation
of deposit products responsive to the needs of low- or moderate-income
individuals would be required for large banks with assets of over $10
billion, and not required for large banks with assets of $10 billion or
less.
Community Development Financing Test. The agencies proposed to
evaluate large banks as well as intermediate banks that opt into the
test under the proposed Community Development Financing Test. As
proposed, the Community Development Financing Test would consist of a
Community Development Financing Metric, benchmarks, and an impact
review. These components would be assessed at the facility-based
assessment area, State, multistate MSA, and institution levels, and
would inform conclusions at each of those levels.
Community Development Services Test. The agencies proposed to
assess a large bank's community development services, underscoring the
importance of these activities for fostering partnerships among
different stakeholders, building capacity, and creating the conditions
for effective community development. The agencies proposed that in
nonmetropolitan areas, banks may receive community development services
consideration for volunteer activities that meet an identified
community development need, even if unrelated to the provision of
financial services. The proposed test would consist of a primarily
qualitative assessment of the bank's community development service
activities. For large banks with assets of over $10 billion, the
agencies proposed also using a metric to measure the hours of community
development services activity per full time employee of a bank.
Wholesale and limited purpose banks. The agencies proposed a
Community Development Financing Test for Wholesale and Limited Purpose
Banks, which would include a qualitative review of a bank's community
development lending and investments in each facility-based assessment
area and an institution level-metric measuring a bank's volume of
activities relative to its capacity. The agencies also proposed giving
wholesale and limited purpose banks the option to have examiners
consider community development service activities that would qualify
under the Community Development Services Test.
Strategic plans. The agencies proposed to maintain a strategic plan
option as an alternative method for evaluation. Banks that elect to be
evaluated under a strategic plan would continue to request approval for
the plan from their appropriate Federal financial supervisory agency.
The agencies proposed more specific criteria to ensure that all banks
meet their CRA obligation to serve low- and moderate-income individuals
and communities. As proposed, banks approved to be evaluated under a
strategic plan option would have the same assessment area requirements
as other banks and would submit plans that include the same performance
tests and standards that would otherwise apply unless the bank is
substantially engaged in activities outside the scope of these
performance tests. In seeking approval for a plan that does not adhere
to requirements and standards that are applied to other banks, the plan
would be required to include an explanation of why different standards
would be more appropriate in meeting the credit needs of the bank's
communities.
Assigned conclusions and ratings. The agencies proposed to provide
greater transparency and consistency on assigning ratings for a bank's
overall performance. The proposed approach would produce performance
scores for each applicable test, at the State, multistate MSA, and
institution levels based on a weighted average of assessment area
conclusions, as well as consideration of additional test-specific
factors at the State, multistate MSA, or institution level. These
performance scores would be mapped to conclusion categories to assign
test-specific conclusions at each level. The agencies further proposed
to combine these performance scores across tests to assign ratings at
each level.
The agencies proposed to determine a bank's overall rating by
taking a weighted average of the applicable performance test scores.
For large banks, the agencies proposed the following weights: 45
percent for Retail Lending Test performance score; 15 percent for
Retail Services and Products Test performance score; 30 percent for
Community Development Financing Test performance score; and 10 percent
for Community Development Services Test performance score. For
intermediate banks, the agencies proposed to weight the Retail Lending
test at 50 percent and the community development test, or if the bank
opted into the Community Development Financing Test, at 50 percent.
The agencies also proposed updating the criteria to determine how
discriminatory and other illegal practices would adversely affect a
rating, as well as what rating level (State, multistate MSA, and
institution) would be affected.
Performance standards for small and intermediate banks. The
agencies proposed to continue evaluating small banks under the small
bank performance standards in the current CRA framework. However, under
the proposal, small banks could opt into the
[[Page 6584]]
Retail Lending Test and could continue to request additional
consideration for other qualifying CRA activities. The agencies would
evaluate intermediate banks under the proposed Retail Lending Test, and
would evaluate an intermediate bank's community development activity
pursuant to the criteria under the current intermediate small bank
community development test. Intermediate banks could also opt to be
evaluated under the proposed Community Development Financing Test.
Effect of CRA performance on applications. The agencies proposed no
substantive changes to the regulatory provisions concerning the effect
of CRA performance on bank applications, such as those for mergers,
acquisitions, or consolidation of assets, deposit insurance requests,
and the establishment of domestic branches.
Data collection, reporting, and disclosure. The agencies proposed
to revise data collection and reporting requirements to increase the
clarity, consistency, and transparency of the evaluation process
through the use of standard metrics and benchmarks. The proposal
recognized the importance of using existing data sources where
possible, and tailoring data requirements, where appropriate.
In addition to leveraging existing data, however, the proposal
would have required large banks to collect, maintain, and report
additional data. The data requirements under the proposal for
intermediate banks and small banks would remain the same as the current
requirements. All large banks under the proposal would have new
requirements for certain categories of data, (including community
development financing data, branch location data, and remote service
facility location data); however, some new data requirements would only
apply to large banks with assets of over $10 billion. The agencies also
proposed updated standards for all large banks to report the
delineation of their assessment areas.
Content and availability of public file, public notice by banks,
publication of planned examination schedule, and public engagement. The
agencies proposed to provide more transparent information to the public
on CRA examinations and encourage communication between members of the
public and banks. The agencies proposed to make a bank's CRA public
file more accessible to the public by allowing any bank with a public
website to include its CRA public file on its website. The agencies
also proposed publishing a list of banks scheduled for CRA examinations
for the next two quarters at least 60 days in advance in order to
provide additional notice to the public. Finally, the agencies proposed
to establish a way for the public to provide feedback on community
needs and opportunities in specific geographies.
Transition. The agencies proposed a phased-in timeline that would
facilitate the transition from the current regulatory and supervisory
framework to the updated CRA regulatory and supervisory framework.
III. General Comments Received
The agencies received approximately 950 unique comment letters
regarding the proposal from a wide range of commenters, including:
financial institutions; non-financial institution and financial
institution trade associations; CDFIs; financial and non-financial
businesses; community development organizations; consumer advocacy
groups; civil rights groups; other nonprofit organizations; Federal,
State, local, and tribal government commenters; tribal organizations;
academics; individuals; and other interested parties. The agencies have
carefully considered all the commenter feedback in developing the final
rule.
Comments received by the agencies cover a wide-ranging set of
topics across the entire proposal. General public comments on the NPR
are summarized below. Comments relating to specific regulatory
provisions of the agencies' proposal and the final rule are discussed
in detail in the section-by-section analyses of the specific provisions
on which commenters shared their views.
A. General Comments Regarding the NPR
Modernizing the CRA performance evaluation framework. Many
commenters expressed appreciation for the agencies' unified efforts to
modernize the CRA framework. Some commenters noted support for the
objective of providing transparency and consistency for banks covered
by CRA and the communities they serve. In addition, several commenters,
expressed support for various aspects of the NPR, including the
proposal's metrics-driven approach and attention to climate resiliency.
Some commenters stated that while the agencies' proposal is a step
in the right direction, more could be done to improve the CRA
regulations, such as requiring the agencies to consult with a diverse
set of community representatives when evaluating an institution's CRA
performance. A few commenters also suggested that the final rule should
encourage both meaningful action to help low- and moderate-income
communities and collaboration between banks and financial technology
(fintech) companies. Another commenter recommended that the agencies
view the military community as a community deserving of CRA support.
The commenter further stated that bank activities that serve the
military community should generally receive CRA credit.
Other commenters opposed or expressed concerns about the proposal
for various reasons, asserting that aspects of the NPR could result in,
for example: decreased bank competition; undue burden and costs; less
credit availability; gentrification of urban Black neighborhoods; and
fewer services in low- and moderate-income communities.
Complexity of the proposed rule. Numerous commenters expressed
concern that the agencies' proposal was too complex and difficult to
understand--primarily related to the proposed performance test measures
and ratings methodology requiring significant resources and costs to
implement--and recommended that the agencies develop a simpler final
rule to avoid unintended negative consequences. Some commenters
recommended the agencies develop tools, guidance, and training for
examiners and allow banks to consult with the agencies as needed.
Coordination of the CRA regulations with State and Federal
agencies. A few commenters expressed concerns regarding the lack of
coordination between the agencies, the CFPB, and the States and
suggested the agencies work together with these other entities to
improve consistency and further the mission of CRA. Other commenters
noted that given shifts in the banking industry, the agencies should
extend CRA regulations to nonbank lenders and, some commenters
recommended, work with the CFPB to do so.
Length of the comment period and other rulemakings. Several
commenters objected to the length of the comment period stating that it
was too short and did not provide sufficient time for analysis and
comment, with some commenters recommending that the agencies withdraw
the proposal, issue a revised set of proposed rules, or open a new
comment period. A few commenters suggested that the agencies should
delay issuance of a final rule given uncertainty in the industry and
the status of other rulemakings such as the CFPB's Section 1071 Final
Rule and the agencies' separate rulemaking on capital requirements for
certain banks.
[[Page 6585]]
Application of the proposed regulations to different business
models. Some commenters expressed concern that the agencies' proposal
did not address the needs of different business models and could create
a one-size-fits-all approach that favors particular business models,
which would not reflect the ever-changing banking landscape. These
commenters indicated that the final rule should do more to recognize
the inherently diffuse nature of digital banking and that more
flexibility is necessary to account for different business models.
Promoting activities in local communities, including rural and
underserved areas. Some commenters asserted that the NPR would be more
effective in boosting reinvestment activity in underserved areas if the
evaluations and ratings were more rigorous. Other commenters expressed
concerns regarding the proposed use of metrics and certain data,
suggesting that they could lead to disinvestment in hard to serve areas
and overinvestment in urban areas due to the use of census data.
The agencies also received comments outlining different methods of
promoting activities and investments at the local level, including
specific recommendations: on how to promote investments in underserved
rural and native communities; that the agencies should incentivize
affordable small dollar loans and other products; and that the agencies
should seek to end ``rent-a-bank'' partnerships.
A few other commenters suggested that the final rule should address
the issue of appraisal bias to ensure lenders are fulfilling the needs
of the communities they serve, and recommended that bank lenders should
complete additional due diligence on the appraisers they work with.
The agencies also received several comments regarding the
importance of performance context, suggesting that performance context
and examiner discretion is necessary to understand the metrics embedded
in the CRA exam.
Legal issues. Some commenters provided general comments raising
legal concerns with the proposal. For example, some commenters stated
that if the proposal is finalized as proposed, the final rule could be
challenged as arbitrary and capricious because it was not supported by
a reasoned analysis. Several commenters expressed the view that the
agencies lack the authority to adopt the proposal. Finally, a commenter
questioned the FDIC Board's authority to issue the NPR and to adopt a
final rule based on certain aspects of the FDIC's organic statute and
the FDIC Board's composition at the time the NPR was issued.
Other comments. The agencies also received suggestions about how
the agencies could evaluate the impact of the final rule, including
five-year lookback reviews and an impact study. Commenter feedback also
included noting that performance evaluations should be published as
soon as reasonably possible. Some commenters urged the agencies to
expand the coverage of CRA to credit unions to ensure low- and
moderate-income communities are adequately served.
Final Rule
The agencies have carefully considered the general commenter
feedback regarding ways in which the NPR could be improved and believe
the final rule strikes the proper balance between the stated
objectives, including to update the CRA regulations to strengthen the
achievement of the core purpose of the statute and adapt to changes in
the banking industry. For additional discussion regarding the agencies'
objectives, see section III.B of this SUPPLEMENTARY INFORMATION. The
agencies also carefully considered commenters' concerns regarding the
complexity of the proposed rule and have made modifications to various
aspects of the final rule to reduce complexity as explained in more
detail in section IV of this SUPPLEMENTARY INFORMATION. In addition,
with respect to the Retail Lending Test, the agencies believe that the
final rule ensures that CRA evaluations of retail lending are
appropriately robust and comprehensive, provides greater consistency
and transparency, and reduces overall complexity relative to the
approach set out in the NPR. The agencies note that any evaluation
approach leveraging metrics and benchmarks that captures the different
ways that banks may serve the credit needs of an area will necessarily
entail a degree of complexity.
The agencies appreciate commenter feedback that the military
community should be considered a community deserving of CRA support.
The agencies believe that the final rule encourages banks to meet the
credit needs of military communities. For example, the final rule
codifies ``military bank'' as a defined term in final Sec. __.12, and
clarifies the assessment area and evaluation approach to military banks
in final Sec. Sec. __.16(d) and __.21(a)(5), respectively.\64\ In
addition, the agencies are specifying in final Sec. __.28(d) that
violations of the Military Lending Act and Servicemembers Civil Relief
Act may constitute discriminatory or other illegal credit practices
that may adversely affect a bank's CRA performance. More generally, the
agencies believe that many bank activities that serve the military
community may receive community development consideration under the
final rule. For further discussion of these provisions, see the
section-by-section analyses of Sec. Sec. __.12, __.16(d), __.21(a)(5),
and __.28(d).
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\64\ See also 12 U.S.C. 2902(4).
---------------------------------------------------------------------------
The agencies appreciate comments encouraging the agencies to
coordinate with States, the CFPB, and other Federal regulators to
improve consistency and efficiency of CRA examinations, and the
agencies note that they currently, and will continue to, coordinate
with other regulators when appropriate on CRA examinations. Further,
the agencies are not able to extend the CRA regulations to cover
nonbank lenders and credit unions. Such an expansion is outside the
scope of this rulemaking and the agencies' current authority.
In response to comments regarding the length of the comment period,
the agencies note that the NPR's comment period was 90 days, which is
consistent with the requirements of the Administrative Procedure Act
and provided sufficient time for public consideration and comment, as
demonstrated by the number of detailed and thoughtful comments the
agencies received on the proposal.
One of the objectives of the CRA proposal was to tailor performance
standards to account for differences in bank size, business models, and
local conditions. The agencies have carefully considered commenter
feedback, and while the agencies believe the proposal provided
flexibility to accommodate institutions with different business models,
the agencies have made various changes in response to commenter
feedback to provide additional flexibility in the final rule as
outlined in the section-by-section analyses in section IV of this
SUPPLEMENTARY INFORMATION. The agencies also note the final rule
retains the strategic plan option for banks to adjust the performance
tests or weighting based on their business model.
After carefully considering commenter suggestions on how to
encourage reinvestment activity through rigorous evaluations and
standards, the agencies are declining to adopt these specific commenter
recommendations. The agencies believe the final rule's evaluation
framework is appropriately rigorous and encourages reinvestment
activity, while maintaining flexibility and allowing room for
consideration of
[[Page 6586]]
performance context. The agencies have considered the views from some
commenters raising concerns on the potential negative impacts of the
use of metrics and data in the proposal. As discussed further in
section IV of this SUPPLEMENTARY INFORMATION, the agencies believe the
use of metrics and data in the final rule is appropriately tailored to
encourage, rather than deter, reinvestment in hard to serve areas.
While the agencies appreciate commenters' suggestions on additional
methods to encourage activities and investments at the local level, the
agencies are declining to adopt these recommendations and believe the
final rule adequately evaluates activities and investments in
underserved and native communities. The agencies appreciate the
comments highlighting the importance of performance context in CRA
examinations, and the agencies are retaining the use of performance
context in the final rule, as explained in the section-by-section
analysis of Sec. __.21(d).
The agencies appreciate commenters' suggestions to address
appraisal bias, and the agencies note that if such bias were found to
evidence discrimination by an institution evaluated under CRA, the
agencies may consider this as the basis for a downgrade as discussed in
the section-by-section analysis of Sec. __.28.
The agencies believe that the NPR adequately explained the
agencies' rationale for the proposed changes. The NPR contains detailed
analysis of the current CRA regulations, the need for modernization,
and an in-depth review of the proposed rule and alternatives the
agencies considered, which are all supported by extensive data.
The agencies acknowledge that commenters provided general comments
raising legal concerns with the proposal. The agencies note that the
CRA authorizes the agencies to adopt regulations to carry out the
purposes of the statute,\65\ and requires the agencies to assess the
institution's record of meeting the credit needs of its entire
community, including low- and moderate-income neighborhoods, consistent
with the safe and sound operation of the bank.\66\ The final rule
furthers the purposes of the CRA and is consistent with the agencies'
rulemaking authority. The agencies also considered the points raised by
the commenter questioning the FDIC Board's authority but find no such
impediment to adoption of the final rule. Legal issues concerning
particular aspects of the proposal are discussed in the section-by-
section analysis in section IV of this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------
\65\ See 12 U.S.C. 2905.
\66\ 12 U.S.C. 2903(a)(1).
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In response to comments regarding lookback reviews, the agencies
often do reviews of their examinations after implementation of revised
or new rules. While the agencies will keep these recommendations in
mind, the agencies are not committing to adopt such recommendations in
a specific timeframe or through a specified method. Regarding the
development of tools, including for small banks, as noted in section I
of this SUPPLEMENTARY INFORMATION, the agencies expect to develop
various materials for banks including data reporting guides, data
reporting templates, and technical assistance to assist banks in
understanding supervisory expectations with respect to the final rule's
performance evaluation standards and data reporting requirements. The
agencies will continue to explore other tools to provide transparent
information to the public, improve efficiency, and reduce burden.
B. General Comments Regarding the Agencies' CRA Modernization
Objectives
As noted in section I of this SUPPLEMENTARY INFORMATION, the
agencies' updates to their CRA regulations in this final rule are
guided by eight objectives. These objectives were set out in the NPR,
and some general comments received on the objectives are summarized
below. Throughout this SUPPLEMENTARY INFORMATION, the agencies provide
additional information and discussion regarding the ways in which this
final rule accomplishes the objectives, including in the section-by-
section analysis in section IV.
The Agencies' Proposal, Comments Received, and the Final Rule
Strengthen the achievement of the core purpose of the statute. As
provided for in the statute, the CRA states that ``[i]t is the purpose
of this chapter to require each appropriate Federal financial
supervisory agency to use its authority when examining financial
institutions, to encourage such institutions to help meet the credit
needs of the local communities in which they are chartered consistent
with the safe and sound operation of such institutions.'' \67\ The CRA
requires the agencies to ``assess the institution's record of meeting
the credit needs of its entire community, including low- and moderate-
income neighborhoods, consistent with the safe and sound operation of
such institution.'' \68\
---------------------------------------------------------------------------
\67\ 12 U.S.C. 2901(b).
\68\ 12 U.S.C. 2903(a)(1).
---------------------------------------------------------------------------
Commenter feedback on this objective included: support for updating
the CRA regulations to achieve this purpose; that CRA modernization
should result in a net increase in the quantity and quality of
financial products and services available in low- and moderate-income
areas; and, that the burden is on the agencies to demonstrate that
modernization efforts would meet these baseline goals for reform.
Additional commenter feedback included: that the sole criterion for
extending CRA consideration to a business activity should be its
direct, significant, and exclusive benefit to low- and moderate-income
individuals; that by ignoring race during CRA exams, the agencies'
proposal falls far short of this objective; and that to achieve the
goal of serving communities with the greatest needs, the agencies must
maintain a balance between the qualitative and quantitative aspects of
the tests and, specifically, to align the twin tracks of CRA compliance
and CDFI certification.
The agencies believe that the final rule updates the CRA
regulations to strengthen the achievement of the core purpose of the
statute. The agencies believe the final rule accomplishes this in
various ways, for example, by: establishing a tailored and rigorous
approach for the performance tests used to assess a bank's record of
meeting the credit needs of its entire community; evaluating the
responsiveness of certain bank's credit products and deposit products,
including an impact and responsiveness review for community development
activities; and including community development definitions that
reflect an emphasis on activities that are responsive to community
needs, especially the needs of low- and moderate-income individuals and
communities. With respect to a commenter's assertion that the agencies
should not ignore race during CRA examinations, the agencies note that
the final rule retains the conditions that facility-based assessment
areas are prohibited from reflecting illegal discrimination and must
not arbitrarily exclude low- or moderate-income census tracts.
Additionally, banks' performance under the CRA can be adversely
affected by evidence of discriminatory or other illegal credit
practices, including violations of ECOA and the Fair Housing Act. The
agencies also believe the final rule appropriately balances the
qualitative and quantitative aspects of the performance tests by
[[Page 6587]]
incorporating standardized metrics and benchmarks in several of the
performance tests, and retaining the ability for the agencies to
consider performance context.
Adapt to changes in the banking industry, including the expanded
role of mobile and online banking. Many commenters expressed general
support for this objective with several of these commenters noting that
now is the time to update the CRA regulations, given advances in
banking technology. A few of these commenters also stated that the CRA
has not kept up with the way consumers expect to use technology to
access financial products and services and that the current CRA
regulations and guidance do not recognize the wide diversity in
business practices of banks or the changes in the financial services
industry that have occurred since the CRA was enacted in 1977.
While some commenters believed the agencies met this objective,
particularly in response to the expanded role of mobile and online
banking, other commenters did not believe the proposal sufficiently met
the objective, noting: efforts to modernize the CRA regulations should
account for current and future ranges of banking and financial service
business models; the NPR emphasizes physical bank branches, which the
commenter asserted will require the agencies to update the CRA rule
once digital banking becomes more common; the proposal may adversely
impact how banks are able to respond to innovations in the marketplace,
explaining that banks should have the ability to comply with the letter
and spirit of the CRA within their chosen business models; the agencies
should request additional authority from Congress to maintain the
integrity and vibrancy of the CRA; and, CRA modernization must
recognize and address the critical importance of digital equity for
creating opportunities and upward mobility for low- and moderate-
income, minority, and rural communities. Also, a commenter stated that
adapting to advances in banking technology should be the one and only
objective of CRA reform, and that the other seven objectives can be
accomplished within the current regulatory framework and through more
effective examinations.
The agencies believe that the final rule takes into account changes
in the banking industry. For example, evaluating retail lending outside
of facility-based assessment areas accounts for current and future
ranges of banking business models. The agencies also believe that the
final rule strikes the appropriate balance by maintaining the
importance of physical branches, while including consideration of
digital and other delivery systems for large banks in recognition of
the trend toward greater use of online and mobile banking. The section-
by-section analysis provides additional discussion regarding the
agencies' decision to maintain the importance of physical branches in
this final rule. See section IV of this SUPPLEMENTARY INFORMATION.
Provide greater clarity and consistency in the application of the
CRA regulations. Some commenters expressed general support for this
objective, with a commenter stating, for example, that the CRA
regulations and supervision have become overly complex and
unpredictable. Another commenter asserted that the proposal promotes
this objective by establishing a framework that would lead to many
positive changes but asserted that certain revisions to the proposal
are required to effectively meet the objective.
The agencies believe that the final rule meets this objective in
several ways, including, for example, by clarifying eligibility
requirements for community development activities, providing that the
agencies will maintain a publicly available illustrative list of non-
exhaustive examples of qualifying activities, and updating certain
performance tests to incorporate standardized metrics, benchmarks, and
thresholds and performance ranges, as applicable.
Better tailor performance standards to account for differences in
bank size, business models, and local conditions, and better tailor
data collection and reporting requirements and use existing data
whenever possible. Commenter sentiments on this objective included
support for tailoring the performance standards and data requirements
of the final rule, as well as concerns that the agencies' proposal
failed to meet these objectives. The agencies believe the final rule
tailors the performance standards based on bank size, business models,
and local conditions in multiple ways. For example, small banks may
continue to be evaluated under the Small Bank Lending Test, unless they
opt into the Retail Lending Test; and intermediate and large banks,
which have more resources than small banks, will be evaluated under the
Retail Lending Test. The final rule also tailors data collection and
reporting requirements because, as further explained in the section-by-
section analysis of Sec. __.42, the new data collection and
maintenance requirements in the final rule do not apply to small and
intermediate banks, and certain new requirements apply only to large
banks with more than $10 billion in assets.
Promote transparency and public engagement. Commenter feedback on
this objective included statements that the CRA regulations must
enhance community participation so that CRA activity is tied to
community needs, and concerns that the proposal may not expand
community participation. The agencies believe the final rule advances
this objective. For example, as explained in more detail in the
section-by-section analysis of Sec. __.46, the final rule specifically
provides a process whereby the public can provide input on community
credit needs and opportunities in connection with a bank's next
scheduled CRA examination. Further, the strategic plan provision
provides an opportunity for the public to provide input on a bank's
strategic plan. See the section-by-section analysis of Sec. __.27.
Confirm that the CRA and fair lending responsibilities of banks are
mutually reinforcing. The agencies received an array of comments on
this objective. Some commenters, for example, asserted that robustly
enforcing current and future CRA requirements relating to race and
ethnicity, in addition to other relevant Federal, State, and local laws
and regulations, is essential to addressing racial and ethnic
inequality. Many commenters asserted that greater coordination between
CRA examinations and fair lending examinations is needed, including,
for example, through development of a CRA examination racial
discrimination assessment that would identify disparate trends, such as
in marketing, originations, pricing and terms, default rates, and
collections. In turn, these commenters indicated that any adverse
findings from this assessment should trigger and support fair lending
examinations. A few commenters indicated that such CRA discrimination
assessments should include an affordability analysis and an analysis of
the quality of lending for all major product lines that includes, for
example, a review of delinquency and default rates. Other commenters
asserted that, in CRA examinations, the agencies should assess whether
banks employ discriminatory algorithm-driven models or other assessment
criteria that disproportionately screen out low- and moderate-income
and minority consumers. Additional commenters indicated that, likewise,
when a fair lending examination is pending, appropriate CRA follow-up
activity and corrective action must ensue once it has concluded.
[[Page 6588]]
Several commenters suggested incorporating additional information
related to discrimination into banks' CRA examinations. In this regard,
a few commenters noted that public information about fair lending
examinations included in CRA performance evaluations has typically been
cursory. Several commenters specified that the agencies should use
race-based HMDA data and, once available, race-based section 1071 data
as a screen in CRA examinations for fair lending reviews. Some
commenters suggested that the agencies should consider evidence of
discrimination obtained by State and local agencies.
On fair lending examinations specifically, commenter feedback
included: that the agencies should bolster fair lending reviews
accompanying CRA exams for banks that perform poorly in the HMDA data
analysis of lending by race; that fair lending examinations should
solicit and rely on feedback from all relevant Federal and State
agencies, as well as community group stakeholders; that both section
1071 data and HMDA data by race should be utilized in bank fair lending
examinations; that fair lending examinations should include a
quantitative analysis of lending to minority individuals and
communities and incorporate an analysis of access to services; and that
disparate impact related to climate change should be incorporated into
the existing fair lending supervisory framework.
The agencies reiterate their view that CRA and fair lending
requirements are mutually reinforcing. Both regimes recognize the
importance of ensuring that the credit markets are inclusive.
Accordingly, and as noted above and discussed further in the section-
by-section analysis of Sec. __.16, the final rule retains the
provisions that delineations of a bank's facility-based assessment
areas are prohibited from reflecting illegal discrimination and must
not arbitrarily exclude low- and moderate-income census tracts. As
discussed further in the section-by-section analysis of Sec. __.23,
the agencies are specifying in the final rule that all special purpose
credit programs under ECOA can be a type of responsive credit program.
As discussed further in the section-by-section analysis of Sec. __.28,
the agencies are also retaining the provision that allows downgrading a
bank for discriminatory or other illegal credit practices. For more
information and discussion regarding the agencies' consideration of
comments recommending adoption of additional race- and ethnicity-
related provisions in the final rule, see section III.C of this
SUPPLEMENTARY INFORMATION. Moreover, although the agencies appreciate
suggestions to enhance the rigor of fair lending examinations, such
examinations are outside the scope of this rulemaking. The agencies are
nevertheless committed to upholding their regulatory responsibilities
for both fair lending and CRA examinations, and the agencies will seek
to coordinate those examinations where practicable.
Additionally, and in furtherance of the agencies' objective to
promote transparency, as discussed in the section-by-section analysis
of Sec. __.42(j), the final rule requires the agencies to provide
additional information to the public for large banks related to the
distribution by borrower income, race, and ethnicity of the bank's home
mortgage loan originations and applications in each of the bank's
assessment areas. This disclosure would leverage existing data
available under HMDA. As discussed in the section-by-section analysis
of Sec. __.42(j), providing data about borrower and applicant race and
ethnicity in this disclosure would have no independent impact on the
conclusions or ratings of the bank and would not on its own reflect any
fair lending finding or violation. Instead, this provision of the final
rule is intended to enhance the transparency of information available
to the public.
Promote a consistent regulatory approach that applies to banks
regulated by all three agencies. Commenter feedback on this objective
included support for a coordinated interagency approach to CRA
modernization and a unified CRA rule, with a commenter stating that the
CRA's purpose is more fully realized when the agencies work in concert.
Some commenters expressed support for coordination between Federal and
State CRA regulatory requirements and between Federal and State
agencies for CRA exams.
The agencies appreciate these comments, believe the final rule
meets this objective, and will continue to coordinate their
implementation of the final rule as appropriate.
C. General Comments Regarding the Consideration of Race and Ethnicity
in the CRA Regulatory Framework
Comments Received
The agencies received many comments regarding consideration of race
and ethnicity in the CRA regulatory and supervisory framework from a
wide range of commenters. General comments on this topic are summarized
below, in this section of the SUPPLEMENTARY INFORMATION. Furthermore,
the agencies received comments regarding the consideration of race and
ethnicity with respect to the agencies' proposed approach to an array
of specific topics, such as: bank size categories; \69\ assessment
areas; \70\ the Retail Lending Test; \71\ the Retail Services and
Products Test, including the consideration of special purpose credit
programs; \72\ affordable housing; \73\ economic development; \74\
activities with MDIs and CDFIs; \75\ disaster preparedness and climate
resiliency; \76\ impact factors; \77\ data on race and ethnicity in the
CRA regulatory framework; \78\ discriminatory or other illegal
practices; \79\ bank applications; \80\ public files; \81\ and public
engagement.\82\ The agencies have carefully considered this commenter
feedback in developing the final rule.
---------------------------------------------------------------------------
\69\ See the section-by-section analysis of final Sec. __.12
(asset size).
\70\ See, e.g., the section-by-section analysis of final Sec.
__.16 (facility-based assessment areas).
\71\ See the section-by-section analysis of final Sec. __.22
(Retail Lending Test), including the section-by-section analyses of
final Sec. __.22(d)(1)(ii)(A)(1), (d)(4), and (e).
\72\ See the section-by-section analysis of final Sec. __.23
(Retail Services and Products Test).
\73\ See the section-by-section analysis of final Sec. __.13(b)
(affordable housing).
\74\ See the section-by-section analysis of final Sec. __.13(c)
(economic development)
\75\ See the section-by-section analysis of final Sec. __.13(j)
(activities with MDIs, WDIs, LICUs, or CDFIs).
\76\ See the section-by-section analysis of final Sec. __.13(i)
(disaster preparedness/weather resiliency).
\77\ See the section-by-section analysis of final Sec. __.15
(impact and responsiveness review).
\78\ See the section-by-section analysis of final Sec. __.42(j)
(HMDA disclosure).
\79\ See the section-by-section analysis of final Sec. __.28(d)
(conclusions and ratings).
\80\ See the section-by-section analysis of final Sec. __.31
(effect of CRA performance on applications).
\81\ See the section-by-section analysis of final Sec. __.43
(public file).
\82\ See the section-by-section analysis of final Sec. __.46
(public engagement).
---------------------------------------------------------------------------
Comments relating to specific regulatory provisions of the
agencies' proposal and the final rule, referenced above, are discussed
in detail in the section-by-section analyses of the specific provisions
on which commenters shared their views. Those discussions cross-
reference this section of the SUPPLEMENTARY INFORMATION where
appropriate.
General comments. Many commenters providing input on the
consideration of race and ethnicity under the CRA asserted that the
agencies' proposal represented a missed opportunity to make racial
equity a central focus of the CRA and to maximize what some commenters
viewed as the statute's potential impact on advancing minority
[[Page 6589]]
access to lending, investment, and services through the mainstream
financial system. Most of these commenters stated that the CRA was
enacted as a response to the history of redlining, other systemic
discrimination, and structural racism, and that the agencies' current
and proposed CRA regulations do not adequately address the need to
advance racial equality, reduce racial wealth and homeownership gaps,
and address intergenerational poverty in minority communities. In this
regard, commenter feedback included that there has been little progress
in closing the racial wealth gap since the enactment of the CRA, and
that the racial wealth gap has actually worsened since that time.
Commenter feedback also included that approximately 98 percent of banks
pass their CRA examinations and that expanded consideration of race and
ethnicity would be appropriate to increase the rigor of CRA
examinations. Additional views included that the agencies should use
the CRA to broaden access to credit for racial and ethnic minorities in
much the same way that the statute has broadened access to credit for
low- and moderate-income individuals and communities.
Some of these commenters also urged greater consideration of race
in a modernized CRA evaluation framework due to racial inequality
related to land use policies, and unjust and inequitable lending
practices, all of which, these commenters indicated, have contributed
to persistent disparities in home ownership rates, wealth accumulation,
and educational and health outcomes for racial and ethnic minorities.
In this regard, some commenters drew attention particularly to the lack
of affordable housing opportunities for racial and ethnic minorities in
metropolitan and rural communities alike. For instance, one commenter
asserted that racial and ethnic minorities who are more likely to live
in low-cost neighborhoods as part of the legacy of historical
residential segregation and decades of discriminatory real estate
practices are not adequately served due to unmet demand for low-cost
housing, including but not limited to small-dollar home mortgage loans.
In addition to the housing concerns, another commenter asserted that
low-income minority communities disproportionately do not have access
to the banking services and products that they need to build wealth,
and further stated that not requiring banks to better address these
needs leads to increased potential for predatory lending and reduced
wealth in these communities. Some commenters also asserted that
robustly enforcing current and future CRA requirements relating to race
and ethnicity, in addition to other relevant Federal, State, and local
laws and regulations, is essential to addressing racial and ethnic
inequality.
A few commenters asserted that explicit consideration of race and
ethnicity in the CRA evaluation framework would provide a buffer
against displacement of minority consumers, which these commenters
indicated leads to the loss of important local resources, such as
healthcare and social services. In this regard, commenter feedback
included: advocating for a greater focus on loans to minority consumers
and not simply loans in minority communities, where the loans might be
made largely to white consumers; an assertion that banks' lending
practices in connection with minority consumers and minority
communities were impacted by the lack of diversity among bank
employees, particularly at senior and executive levels; an assertion
that all banks should be positioned to work with non-English speaking
consumers; and a recommendation that banks be given consideration for
offering linguistically and culturally appropriate services and
resources to consumers with limited English proficiency so that such
consumers may access safe and affordable credit.
Some commenters suggested that the agencies adopt forms of
quantitative analyses to consider race and ethnicity as part of CRA
evaluations. For example, a commenter recommended that the agencies
conduct periodic statistical analyses to identify areas where
discrimination or ethnic and racial disparities in credit access exist.
This commenter further recommended that in areas where significant
disparities exist, the agencies should incorporate performance measures
based on race and ethnicity into bank performance evaluations, with
separate race- and ethnicity-based performance measures contributing to
bank ratings on individual performance tests and overall.
On the subject of terminology, a commenter urged the agencies not
to use the term ``minority'' in the CRA regulations but rather to use
the term BIPOC (Black, Indigenous, and People of Color), which the
commenter asserted better acknowledges different types of prejudice and
discrimination.\83\
---------------------------------------------------------------------------
\83\ The agencies acknowledge the commenter suggestion to use
the term ``BIPOC'' throughout the final rule but are electing to use
the term ``minority,'' which is used expressly in the CRA statute,
and to clarify, where practicable, when the agencies intend to refer
specifically to racial and ethnic minorities. See 12 U.S.C.
2907(b)(3).
---------------------------------------------------------------------------
Comments on legal basis for express consideration of race and
ethnicity in the CRA regulatory framework. Several commenters provided
input supporting the permissibility of express consideration of race
and ethnicity under the statute. Some of these commenters asserted that
the CRA is a civil rights law and that, accordingly, the agencies have
authority to expressly consider race and ethnicity in their CRA
regulations to address redlining and other racial discrimination in
banking. Moreover, several commenters stated that addressing racial
inequities is a core ``remedial'' purpose of the CRA as part of a
``suite'' of laws enacted to address racial inequities in housing and
credit. A few commenters pointed to the CRA's focus on encouraging
banks to serve their ``entire community'' \84\ suggesting that the
agencies should therefore focus specifically on the minority
constituencies who are part of the entire community in evaluating each
bank's CRA performance. Another commenter provided legal analysis
arguing that the agencies could incorporate express consideration of
race and ethnicity in CRA regulations in various ways that the
commenter stated were consistent with requirements applicable to race-
based government action under the Equal Protection Clause of the U.S.
Constitution. Relatedly, the commenter indicated that, to satisfy
constitutional requirements and appropriately target the effects of
discrimination, the agencies should conduct and periodically update a
study to determine with specificity where, and regarding which
financial products, discrimination continues to have an impact. Other
commenters asserted that express references to race in the statute,
such as the provision allowing investments with MDIs to count for
CRA,\85\ indicate that an explicit focus on race is within the purview
of the CRA.
---------------------------------------------------------------------------
\84\ See 12 U.S.C. 2903 and 2906.
\85\ See, e.g., 12 U.S.C. 2903(b).
---------------------------------------------------------------------------
Conversely, a few commenters cautioned against expanding
consideration of race and ethnicity in the CRA regulatory framework due
to legal concerns. Some of these commenters expressed their perspective
that the law is limited in its capacity to address racial equity, even
though they view the CRA as a civil rights law and acknowledge that
racial equity is central to equal opportunity, social cohesion, and
prosperity. Another commenter
[[Page 6590]]
suggested that the CRA is a race-neutral law designed to combat race-
based discriminatory policies and practices. Additionally, commenter
feedback included that, although structural racism is a reality,
incorporating racial equity into the CRA evaluation process could lead
to both legal and practical issues and undermine the valuable
contribution that CRA can make to low- and moderate-income consumers
and communities.
Low-and moderate-income status and race. Many commenters advocating
for greater consideration of race and ethnicity under the CRA indicated
that, in addition to focusing on low- and moderate-income consumers and
communities, the agencies should explicitly focus on minority consumers
and communities. For example, a commenter asserted that racial
discrimination will persist if income categorizations continue to be
used to rate bank performance without considering race. Some commenters
also noted that low- and moderate-income communities and minority
communities are not the same, so closing racial wealth gaps requires
express consideration of race. To illustrate this point, a commenter
stated that about two-thirds of low-income communities are
predominantly minority, but only about one-third of moderate-income
neighborhoods are predominantly minority. Another commenter similarly
indicated that nearly two-thirds of low- and moderate-income households
are White, while nearly 40 percent of Black households and more than
half of Hispanic households are not low- or moderate-income.
Consequently, many commenters urged that racial equity should be
incorporated comprehensively into the agencies' CRA regulations,
including through both incentives and affirmative obligations for banks
to serve racial and ethnic minority consumers, businesses, and
communities. Many of these commenters asserted that doing so would have
a direct, positive impact on such minorities' economic inclusion,
quality of life, and health outcomes. Closing the racial wealth gap, a
commenter stated, would also make the U.S. economy substantially
stronger. To facilitate the incorporation of racial equity into the CRA
regulations, a commenter asserted that the agencies could employ the
``other targeted population'' framework already provided for in the
Riegle Community Development and Regulatory Improvement Act's
definition of ``targeted populations,'' which the commenter explained
can include either individuals who are low-income or others who ``lack
adequate access to Financial Products or Financial Services in the
entity's Target Market,'' to include certain minority groups.
Final Rule
The agencies have considered and appreciate the many comments
asserting that the agencies should incorporate additional regulatory
provisions regarding race and ethnicity into the CRA regulatory and
supervisory framework. These comments raise important and significant
considerations about financial inclusion, discrimination, and broader
economic issues. The agencies have carefully considered these comments,
including those summarized in this section and in the section-by-
section analysis of the final rule (see section IV of this
SUPPLEMENTARY INFORMATION), as well as the statutory purposes and text
of the CRA. The agencies have also assessed other relevant legal and
supervisory considerations, including, in particular, the
constitutional considerations and implementation challenges associated
with adopting regulatory provisions that expressly address race and
ethnicity when implementing statutory text that does not expressly
address race or ethnicity. Based upon these considerations, the
agencies have determined not to include additional race- and ethnicity-
related provisions other than what is adopted in this final rule and
discussed in more detail throughout this Introduction and section IV of
the SUPPLEMENTARY INFORMATION.
The agencies believe that the final rule strengthens the CRA's
emphasis on encouraging banks to engage in activities that better
achieve the core purpose of the CRA, and thereby meet the credit needs
of their entire communities, including low- and moderate-income
individuals and communities. Relatedly, the agencies continue to
recognize that the CRA and fair lending requirements are mutually
reinforcing, including by specifying in the final rule that special
purpose credit programs under ECOA can be a type of responsive credit
program, and by reaffirming that violations of the Fair Housing Act and
ECOA can be the basis of a CRA rating downgrade. As noted, for example,
in section III.B of this SUPPLEMENTARY INFORMATION, the final rule also
retains the current rule's prohibition against banks delineating
facility-based assessment areas in a manner that reflects illegal
discrimination or arbitrarily excludes low- and moderate-income census
tracts, and provides that the CRA performance of banks that engage in
discriminatory or other illegal credit practices can be adversely
affected by such practices. For more information and discussion
regarding how the final rule strengthens the achievement of the core
purpose of the statute, and confirms that CRA and fair lending
responsibilities are mutually reinforcing (see sections III.B and IV of
this SUPPLEMENTARY INFORMATION).
IV. Section-by-Section Analysis
Section __.11 Authority, Purposes, and Scope
Current Approach and the Agencies' Proposal
Current Sec. __.11 sets forth the authority, purposes, and scope
of the CRA regulations. Paragraphs (a) and (c) of the section are
agency-specific regulatory text, with paragraph (a) outlining the legal
authority for each agency to implement the CRA and paragraph (c)
providing the scope of each agency's CRA regulations. Common rule text
in Sec. __.11(b) provides that this part implements the CRA by
establishing the framework and criteria by which the agencies assess a
bank's record of helping to meet the credit needs of its entire
community, including low- and moderate-income neighborhoods, consistent
with the safe and sound operation of the bank; and providing that the
agencies take that record into account in considering certain
applications.
Consistent with the current rule, proposed Sec. __.11 sets forth
the authority, purposes, and scope of the CRA regulations, with the
authority and scope paragraphs (proposed Sec. __.11(a) and (c))
including agency-specific regulatory text. Proposed Sec. __.11(b)
included technical, non-substantive edits to the current regulatory
text, such as adding CRA's legal citation.
The OCC proposed to amend its authority section, Sec. 25.11(a) by
referencing part 25 in its entirety instead of each subpart, and by
removing paragraph (a)(2), Office of Management and Budget (OMB)
control number, as such information is unnecessary for regulatory text.
The OCC also proposed technical edits to its scope section, Sec.
25.11(c), to reflect the organization of the proposed common rule text.
The Board did not propose any amendments to its authority section,
Sec. 228.11(a), and proposed to amend its scope section, proposed
Sec. 228.11(c), to replace references to ``special purpose banks''
with ``exempt banks'' to avoid any potential confusion with the OCC's
special purpose bank charter.
[[Page 6591]]
The FDIC proposed to amend its authority section, Sec. 345.11(a),
by removing paragraph (a)(2), OMB control number, as such information
is unnecessary for regulatory text. The FDIC did not propose any
amendments to its scope section in Sec. 345.11(c).
Comments Received and Final Rule
The agencies did not receive comments specific to the language in
proposed Sec. __.11(b) or the agency-specific language in proposed
Sec. __.11(a) and (c). Therefore, the agencies are adopting Sec.
__.11(b) as proposed, and the Board is adopting its agency-only
provisions, paragraphs (a) and (c), as proposed.
The OCC adopts paragraph (a) as proposed, and paragraph (c) as
proposed with technical edits. Specifically, the OCC has moved the
definition of ``appropriate Federal banking agency'' in proposed Sec.
25.11(c)(1)(iii) to final Sec. 25.12 (Definitions), where it more
appropriately belongs. As in the current rule and as proposed,
``appropriate Federal banking agency'' in the final rule means, with
respect to subparts A (except in the definition of minority depository
institution in Sec. 25.12) through E and appendices A through G, the
OCC with respect to a national bank or Federal savings association and
the FDIC with respect to a State savings association.\86\ In addition,
the OCC has added Federal branches of foreign banks to paragraph
(c)(1)(i), which lists the types of entities for which the OCC has
authority to prescribe CRA regulations, to more accurately describe
this authority. The OCC has also made minor technical edits to the
listing of part 25 subparts in final paragraph (c).
---------------------------------------------------------------------------
\86\ Final subpart F of part 25, Prohibition Against Use of
Interstate Branches Primarily for Deposit Production, applies only
to certain national banks and Federal branches of a foreign bank and
includes ``OCC'' instead of ``appropriate Federal banking agency.''
---------------------------------------------------------------------------
The FDIC is adopting paragraph (a) as proposed and paragraph (c)
with technical edits. In the proposed rule, the FDIC's paragraph (c)(2)
maintained references to current Sec. 345.41. The FDIC is adopting
paragraph (c)(2) to reflect the final rule's new assessment area
provisions. Thus, final paragraph (c)(2) provides that, for insured
State branches of a foreign bank established and operating under the
laws of any State, their facility-based assessment area and, as
applicable, retail lending assessment areas and outside retail lending
assessment area, are the community or communities located within the
United States, served by the branch as described in Sec. 345.16 and,
applicable, Sec. Sec. 345.17 and 345.18.
Section __.12 Definitions
In proposed Sec. __.12 (Definitions), the agencies proposed many
terms defined in the current CRA regulations, some with substantive or
technical revisions. The agencies also proposed new definitions that
the agencies considered necessary to clarify and implement proposed
revisions to the CRA evaluation framework, some of which reflect
understandings of terms long used in the CRA evaluation framework or
that are consistent with the Interagency Questions and Answers.
The agencies received numerous comments on some of these
definitions. These comments and the definitions as included in the
final rule are discussed below.
Affiliate
Under the current CRA regulations, the term ``affiliate'' means any
company that controls, is controlled by, or is under common control
with another company. The term ``control'' has the same meaning given
to that term in section 2 of the Bank Holding Company Act, 12 U.S.C.
1841(a)(2), and a company is under common control with another company
if both companies are directly or indirectly controlled by the same
company.\87\ The agencies proposed to retain their current definitions
of ``affiliate,'' with the Board including one technical change to the
definition in its regulation to add a reference to its bank holding
company regulations, Regulation Y, 12 CFR part 225. Specifically, the
Board proposed to define affiliate as any company that controls, is
controlled by, or is under common control with another company. The
term ``control'' has the meaning given to that term in 12 U.S.C.
1841(a)(2), as implemented by the Board in 12 CFR part 225, and a
company is under common control with another company if both companies
are directly or indirectly controlled by the same company. The FDIC and
the OCC did not propose any revisions to the definition of
``affiliate'' in the agencies' respective CRA regulations.\88\
---------------------------------------------------------------------------
\87\ See current 12 CFR __.12(a).
\88\ See current 12 CFR 25.12(a) (OCC) and 345.12(a) (FDIC).
---------------------------------------------------------------------------
The agencies did not receive any comments on the proposed
definitions of ``affiliate'' and adopt the definitions as proposed in
the final rule. Accordingly, the Board is adopting the proposed
definition of ``affiliate'' in the final rule, which will be contained
solely in its CRA regulations. The FDIC and the OCC are retaining the
current definition of ``affiliate'' in their respective CRA
regulations, which define affiliate as any company that controls, is
controlled by, or is under common control with another company. The
term ``control'' has the same meaning given to that term in 12 U.S.C.
1841(a)(2), and a company is under common control with another company
if both companies are directly or indirectly controlled by the same
company.\89\
---------------------------------------------------------------------------
\89\ See id.
---------------------------------------------------------------------------
Affordable Housing
The agencies proposed to add a definition of ``affordable housing''
to mean activities described in proposed Sec. __.13(b). See the
section-by-section analysis of Sec. __.13(b) for a detailed discussion
of affordable housing. The agencies did not receive any comments on the
proposed ``affordable housing'' definition and adopt it as proposed in
the final rule.
Area Median Income
The agencies proposed to retain the current definition of ``area
median income,'' \90\ with one conforming change to replace the term
``geography'' with ``census tract,'' but keep the same meaning (see the
discussion of ``census tract'' in Sec. __.12 of this section-by-
section analysis).\91\ Under the proposal, ``area median income'' would
mean: (1) the median family income for the metropolitan statistical
area (MSA), if a person or census tract is located in an MSA, or for
the metropolitan division, if a person or census tract is located in an
MSA that has been subdivided into metropolitan divisions; or (2) the
statewide nonmetropolitan median family income, if a person or census
tract is located outside an MSA.
---------------------------------------------------------------------------
\90\ See current 12 CFR __.12(b).
\91\ See current 12 CFR __.12(k) (defining ``geography'' to mean
``a census tract delineated by the United States Bureau of the
Census in the most recent decennial census'').
---------------------------------------------------------------------------
The agencies did not receive any comments on the proposed ``area
median income'' definition. However, the agencies are adopting the
definition in the final rule as proposed with conforming and clarifying
edits. First, in paragraph (1), the agencies have made a minor
conforming change by replacing ``metropolitan statistical area (MSA)''
with ``MSA.'' Second, in paragraphs (1) and (2), the agencies have
replaced the phrase ``if a person'' with ``if an individual, family,
household.'' Third, in paragraph (1), the agencies have added the
phrase ``that has not been subdivided into metropolitan divisions''
after ``located in an MSA'' to differentiate the first and second
prongs of this paragraph. Fourth, in paragraph (2), as a conforming
change, the
[[Page 6592]]
agencies have replaced the phrase ``outside an MSA'' with ``in a
nonmetropolitan area.'' Final Sec. __.12 defines ``nonmetropolitan
area'' to mean any area that is not located in an MSA.
Accordingly, the final rule defines ``area median income'' to mean:
(1) the median family income for the MSA, if an individual, family,
household, or census tract is located in an MSA that has not been
subdivided into metropolitan divisions, or for the metropolitan
division, if an individual, family, household, or census tract is
located in an MSA that has been subdivided into metropolitan divisions;
or (2) the statewide nonmetropolitan median family income, if an
individual, family, household, or census tract is located in a
nonmetropolitan area.
Assets
The final rule includes a new definition for ``assets,'' not
included in the proposal. This term means total assets as reported in
Schedule RC of the Consolidated Reports of Condition and Income as
filed under 12 U.S.C. 161, 324, 1464, or 1817, as applicable (Call
Report), or as reported in Schedule RAL of the Report of Assets and
Liabilities of U.S. Branches and Agencies of Foreign Banks (Report of
Assets and Liabilities), as filed under 12 U.S.C. 1817(a), 3102(b), or
3105(c)(2), as applicable. Although the agencies did not propose this
definition, they have added it to the final rule to clarify the
intended meaning of this term in the CRA regulations.
Assessment Area
The current CRA regulations define ``assessment area'' to mean a
geographic area delineated in accordance with 12 CFR __.41.\92\ Current
Sec. __.41 sets out the criteria for banks to delineate assessment
areas. The agencies proposed to replace ``assessment area'' with three
new terms in proposed Sec. __.12: ``facility-based assessment area,''
``retail lending assessment area,'' and ``outside retail lending
area,'' as these new terms are used in the proposal. These new
definitions are discussed below. The agencies did not receive any
comments concerning the removal of the ``assessment area'' definition
and have removed this term in the final rule.
---------------------------------------------------------------------------
\92\ See current 12 CFR __.12(c).
---------------------------------------------------------------------------
Bank
Under the current CRA regulations, the Board and FDIC have separate
definitions for the term ``bank.'' Each agency defines ``bank'' to
refer to the entities regulated by the agency for which the agency
evaluates CRA performance. The FDIC and Board did not propose changes
to the current definitions of ``bank'' in their respective CRA
regulations and received no comments on their proposed definitions of
``bank.'' Accordingly, the final rule retains the current definitions
of ``bank'' in the FDIC's and the Board's regulations.\93\
---------------------------------------------------------------------------
\93\ The agencies' definitions of ``bank'' are included in the
agency-specific amendatory text, outside of the common rule text.
---------------------------------------------------------------------------
As such, for the FDIC, the term ``bank'' means a State nonmember
bank, as that term is defined in section 3(e)(2) of the Federal Deposit
Insurance Act (FDIA) (12 U.S.C. 1813(e)(2)), with federally insured
deposits, except as defined in final Sec. 345.11(c). The term ``bank''
also includes an insured State branch as defined in final Sec.
345.11(c).
For the Board, the term ``bank'' means a State member bank as that
term is defined in section 3(d)(2) of the FDIA (12 U.S.C. 1813(d)(2)),
except as provided in final Sec. 228.11(c)(3) and includes an
uninsured State branch (other than a limited branch) of a foreign bank
described in final Sec. 228.11(c)(2). Accordingly, consistent with the
Board's current CRA regulations, the term ``bank'' in final Sec.
228.12 includes an uninsured State branch (other than a limited branch)
of a foreign bank that results from an acquisition described in section
5(a)(8) of the International Banking Act of 1978 (12 U.S.C.
3103(a)(8)). Also, generally consistent with the current CRA
regulations, ``bank'' in final Sec. 228.12 does not include banks that
do not perform commercial or retail banking services by granting credit
to the public in the ordinary course of business, other than as
incident to their specialized operations and done on an accommodation
basis.\94\ This exception for banks that do not perform commercial or
retail banking services aligns with the current CRA regulations,
including that performing commercial and retail banking services solely
``on an accommodation basis'' will not qualify an entity as a ``bank.''
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\94\ See final Sec. 228.12 (defining ``bank'' to exclude
institutions described in final Sec. 228.11(c)(3)). These
institutions include bankers' banks, as defined in 12 U.S.C.
24(Seventh), and banks that engage only in one or more of the
following activities: providing cash management-controlled
disbursement services or serving as correspondent banks, trust
companies, or clearing agents.
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The OCC's current CRA regulation provides that ``bank or savings
association'' means, except as provided in Sec. 25.11(c), a national
bank (including a Federal branch as defined in part 28) with federally
insured deposits or a savings association. Further, the OCC regulation
provides that ``bank and savings association'' means, except as
provided in Sec. 25.11(c), a national bank (including a Federal branch
as defined in part 28) with federally insured deposits and a savings
association.\95\
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\95\ See current 12 CFR 25.12(e). Pursuant to title III of the
Dodd-Frank Act, and as described in footnote 2 of this SUPPLEMENTARY
INFORMATION, the OCC's CRA regulation applies to both State and
Federal savings associations, in addition to national banks. The
FDIC enforces the OCC's CRA regulations with respect to State
savings associations.
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For clarity and conciseness, the OCC proposed separate definitions
of ``bank'' and ``savings association,'' without changing the substance
of the current definitions. The OCC received no comments on this
technical change and adopts the definitions as proposed in the final
rule. As a result, in the final rule, ``bank'' means a national bank
(including a Federal branch as defined in part 28) with federally
insured deposits, except as provided in Sec. 25.11(c); and ``savings
association'' means a Federal savings association or a State savings
association.
Bank Asset-Size Definitions
Current Approach
Under the current CRA regulations, the agencies define ``small
bank'' to mean ``a bank that, as of December 31 of either of the prior
two calendar years, had assets of less than $1.503 billion.'' \96\ The
agencies defined ``intermediate small bank'' to mean ``a small bank
with assets of at least $376 million as of December 31 of both of the
prior two calendar years and less than $1.503 billion as of December 31
of either of the prior two calendar years.'' \97\ The agencies adjust
these terms annually for inflation based on the year-to-year change in
the average of the Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W), not seasonally adjusted, for each 12-month
period ending in November, with rounding to the nearest million.\98\
The current CRA regulations do not define the term ``large bank,'' but
any bank with assets exceeding those defining an ``intermediate small
bank'' is understood to be a large bank (otherwise referred to as a
``large institution'').
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\96\ The current asset-size threshold for a ``small bank''
reflects the annual dollar adjustment to the figures contained in
current 12 CFR __.12(u)(1). See current 12 CFR __.12(u)(2).
\97\ See current 12 CFR __.12(u)(1).
\98\ See current 12 CFR __.12(u)(2).
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The Agencies' Proposal
The agencies proposed raising the asset-size threshold for the
``small bank'' definition to provide more clarity, consistency, and
transparency in the
[[Page 6593]]
evaluation process, and in recognition of the potential challenges
associated with regulatory changes and data collection requirements for
banks with more limited capacity. Under the proposal, a small bank
would be a bank that had average assets of less than $600 million in
either of the prior two calendar years, based on the assets reported on
its four quarterly Call Reports for each of those calendar years. The
agencies also proposed to add a new definition for ``intermediate
bank'' that would replace the current ``intermediate small bank''
definition. Under the proposal, intermediate bank would mean a bank
that had average assets of at least $600 million in both of the prior
two calendar years and less than $2 billion in either of the prior two
calendar years, based on the assets reported on its four quarterly Call
Reports for each of those calendar years. The agencies intended the
proposed ``intermediate bank'' definition to comprise a category of
banks that have meaningful capacity to engage in CRA-related activities
under the proposed Retail Lending Test and conduct community
development activities, but that might have more limited capacity
regarding data collection and reporting requirements than large banks.
Finally, the agencies proposed to add a new ``large bank''
definition that would mean a bank that had average assets of at least
$2 billion in both of the prior two calendar years, based on the assets
reported on its four quarterly Call Reports for each of those calendar
years. This proposed definition reflects the agencies' view that banks
of this size generally have the capacity to conduct the range of
activities that would be evaluated under each of the four performance
tests proposed to apply to large banks.
The agencies proposed to make annual adjustments to the asset-size
thresholds for all three categories of banks based on the same CPI-W
inflation measure used in the current CRA regulations for small and
intermediate banks.\99\
---------------------------------------------------------------------------
\99\ See current 12 CFR __.12(u)(2).
---------------------------------------------------------------------------
As under the current CRA regulations, asset-size classification is
relevant because it determines a bank's CRA evaluation framework.
Consistent with the proposal, under the final rule, large banks are
evaluated under the Retail Lending Test in final Sec. __.22, the
Retail Services and Products Test in final Sec. __.23, the Community
Development Financing Test in final Sec. __.24, and the Community
Development Services Test in final Sec. __.25. Intermediate banks are
evaluated under the Retail Lending Test in Sec. __.22, and either the
current Intermediate Bank Community Development Test, in final Sec.
__.30(a)(2),\100\ or, at the bank's option, the Community Development
Financing Test in final Sec. __.24.\101\ Small banks are evaluated
under the small bank lending test, in final Sec. __.29(a)(2),\102\ or,
at the bank's option, the Retail Lending Test in final Sec. __.22.
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\100\ In the proposal, the Intermediate Bank Community
Development Test, referred to as the ``intermediate bank community
development evaluation,'' is in proposed Sec. __.29(b).
\101\ See final Sec. __.30(a)(1).
\102\ In the proposal, the Small Bank Lending Test, referred to
as the ``status quo small bank lending test,'' is in proposed Sec.
__.29(a).
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Comments Received
The agencies received numerous comments on the proposed ``small
bank,'' ``intermediate bank,'' and ``large bank'' definitions. Given
that the current and proposed definitions are interconnected, the
agencies believe it is appropriate to discuss the comments
collectively.
Many commenters expressed general support for the proposal to
increase the asset-size thresholds for small, intermediate, and large
banks. Many of these commenters indicated that the proposed thresholds
are reasonable and would represent appropriate burden relief for banks
that would qualify as small or intermediate banks under the proposed
definitions. Several commenters stated that the proposed asset-size
thresholds are appropriate to ensure that smaller banks with more
limited staff and other resources are not subjected to the same
performance expectations or data collection and reporting requirements
as larger banks. Several other commenters supported the proposed asset-
size thresholds based not only on other regulatory burden they
anticipate under the proposal but also on the principle that community
banks already experience significant regulatory burden unrelated to the
CRA. Another commenter approved of the increased asset-size thresholds
on the basis that they would permit smaller banks to expand to meet the
needs of their communities without necessarily subjecting themselves to
new CRA requirements that the commenter stated were likely to have
onerous costs.
Many commenters specifically expressed support for increasing the
asset-size threshold for a small bank to $600 million. These commenters
noted that the asset-size threshold would apply to approximately the
same percentage of banks as were classified as small banks when the
agencies' amended their CRA regulations in 2005. Several other
commenters explained that the asset-size threshold increases would be a
timely and welcome adjustment because of changes in the banking
industry and the unprecedented growth of bank balance sheets and excess
liquidity that has resulted from Federal Government stimulus in
response to the COVID-19 pandemic. Another commenter indicated that
raising the asset-size threshold as proposed was a timely action on the
part of the agencies due to recent trends in inflation that are beyond
banks' control. One commenter stated that the current asset-size
thresholds are too low and reflected prior conditions.
Many other commenters expressed opposition to the proposed asset-
size threshold increases and advocated for the agencies to maintain the
current thresholds. Some of these commenters stated that the proposed
changes were inappropriate because reclassified banks would be subject
to less rigorous performance standards and diminished agency oversight,
which would minimize transparency and accountability and reduce those
banks' CRA obligations and reinvestment. Other commenters noted that
raising the asset-size thresholds would result in missed opportunities
for reclassified banks to expand and improve their CRA activity under
more rigorous performance standards. These commenters also asserted
that the proposed changes to the asset-size thresholds are not
justified because banks already perform successfully under the current,
lower thresholds for small, intermediate small, and large banks.
Many commenters focused on the number of banks that would be
reclassified into a smaller asset-size category and the adverse effect
this reclassification could have on community development financing,
with a few commenters stating that increasing the small bank asset-size
threshold would reduce the amount of community development activity,
especially in smaller and more rural communities. Some commenters
highlighted the agencies' statement in the proposal that approximately
778 current intermediate small banks would be reclassified as small
banks and 216 current large banks would be reclassified as intermediate
banks.\103\ These commenters expressed their belief that the
reclassified banks would no longer be held accountable (or would
[[Page 6594]]
be held accountable to a lesser degree) for community development
financing activity. Many of these commenters suggested that this loss
of accountability would cause significant reductions in community
development financing, with some commenters citing estimated annual
losses of $1 billion to $1.2 billion. These commenters argued that, if
these forecasted losses in community development financing are remotely
accurate, the change in asset-size thresholds would amount to a
significant failure on the part of the agencies. Many commenters
indicated that although the impact of reduced community development
financing would be experienced in low- and moderate-income communities
nationwide, the losses are likely to be most acute in less populated
communities, such as rural, micropolitan, and small-town areas, where a
substantial number of the reclassified banks are located. A few
commenters specified that any loss of community development financing
could adversely affect the availability of affordable housing and bank
responsiveness to other important community needs.
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\103\ See 87 FR 33884, 33924 (June 3, 2022).
---------------------------------------------------------------------------
Several commenters explained that reductions in community
development financing as a result of asset-size threshold changes could
adversely affect CDFIs by diminishing bank-CDFI relationships, and the
flow of capital from banks to CDFIs--especially CDFIs located in
smaller or rural communities. Noting that the agencies stated in the
proposal that raising the asset-size thresholds would impact only two
percent of bank assets in the banking system, some commenters indicated
that a reclassified bank may be the only lender or one of a small
number of banks with any presence in a geographic area.
Some commenters stated that reclassifying some current large banks
as intermediate banks could negatively impact the availability of
banking services in low- and moderate-income and rural communities
because the proposed Retail Services and Products Test and Community
Development Services Test would only apply to large banks. Several
other commenters stated that reclassifying a large bank as an
intermediate bank would effectively eliminate agency evaluation of
applicable service considerations such as the operation of bank
branches in their communities.
A few commenters expressed concerns about the impact of the
agencies' proposal to revise asset-size thresholds on racial or ethnic
minority communities. A commenter stated that a number of Black
communities would be significantly adversely impacted by the
reclassification of certain large banks as intermediate banks and
certain intermediate small banks as small banks. The commenter asserted
that these changes would reduce these banks' incentives to engage with
Black communities, given the specific performance tests that would be
applicable to small banks and intermediate banks under the agencies'
proposal. Another commenter raised concerns that small banks and
intermediate banks would not be subject to a retail services test. In
the commenter's view, an evaluation of retail services is critical to
ensure that bank branches are located in both low- and moderate-income
communities and minority communities.
A few commenters stated that raising the large bank asset-size
threshold could result in diminished bank investment in New Markets Tax
Credits (NMTC) and other community tax credit investments given that,
under the proposal, intermediate and small banks would not have
corresponding community development requirements. These commenters also
indicated that relieving banks of these requirements could negatively
impact overall demand for community tax credit investments, for which
the majority of investors are CRA-motivated banks.
Many of the commenters opposing the proposed asset-size threshold
increases asserted that regulatory relief for banks was not a
sufficient justification for changes that would adversely impact local
communities. Several commenters argued that the potential burden on
banks from being classified as a larger institution would not outweigh
the need for accountability and equity. Another commenter indicated
that the agencies did not produce estimates or data indicating that the
proposed regulatory approach would be so prohibitively burdensome that
significant increases in asset-size thresholds were necessary.
Several other commenters stated that the agencies' proposal should,
at a minimum, provide for the same range of community development
financing activity for all current intermediate small banks and large
banks as under the current CRA regulations. A commenter asserted that
the proposal goes backwards with no justification for how the reduction
in compliance burden for banks reclassified as smaller banks would
offset the loss of reinvestment activity from a public benefits
perspective. Some commenters added that the impacted banks are engaging
in community development under the current asset-size thresholds
without any apparent deleterious impacts. Other commenters asserted
that maintaining the current asset-size thresholds would be more
consistent with the agencies' goal of strengthening the CRA framework.
A few commenters suggested that the current asset-size thresholds
could remain in place and continue to be adjusted for inflation. A
commenter indicated that, based on the application of inflation
adjustments to the current asset-size thresholds, the proposed small
bank asset-size threshold was too large in comparison. The commenter
explained that if the agencies' proposed asset-size thresholds for
small, intermediate, and large banks were adjusted for inflation, the
asset-size thresholds would be approximately $375 million for small
banks and approximately $1.5 billion for large banks.
A commenter opposed the proposed asset-size threshold changes on
the grounds that the thresholds for intermediate and large banks are
arbitrary and not based on any relevant data or analysis. The commenter
also asserted that the proposed intermediate bank threshold is
similarly unsupported and would subject reclassified intermediate banks
to considerably increased compliance costs without commensurate
benefit. Another commenter stated that the agencies did not provide
documentation supporting the increase in the proposed asset-size
thresholds.
Alternate asset-size thresholds. Many commenters recommended that
the agencies adopt asset-size thresholds for small, intermediate, and
large banks that are higher than those proposed. These commenters
suggested asset-size thresholds of $750 million to $5 billion for
intermediate banks and from $2.5 billion to $20 billion for large
banks. Commenters asserted that higher asset-size thresholds are
necessary to provide regulatory relief and limit the significant
compliance burdens that the agencies' proposal would otherwise impose
on smaller banks. A commenter stated that increasing the small bank
asset-size threshold to $750 million would avoid placing unnecessary
regulatory burden on smaller mission-driven institutions. Another
commenter stated that regulatory burden considerations justified a
variety of small bank asset-size thresholds of up to $3 billion.
Another commenter stated that it lacked the financial and human
resources to monitor performance under the proposed Retail Lending Test
and requested a significantly higher asset-size threshold for large
banks. Other commenters suggested asset-size
[[Page 6595]]
thresholds for large banks ranging from $3.3 billion to $20 billion,
based on compliance burden as well as inflation adjustments.
A few commenters specifically drew attention to smaller banks'
resource capacities in advocating for higher asset-size thresholds. A
commenter suggested an asset-size threshold of $750 million for small
banks and an asset-size threshold of $3 billion for large banks based
on resource capacity. Another commenter expressed support for a large
bank asset-size threshold of $3 billion. Several other commenters
recommended an asset-size threshold of $1 billion for small banks and
an asset-size threshold of $5 billion for large banks to better reflect
resource capacity and the ability to comply with the proposed
performance test requirements. A commenter suggested that a $1 billion
asset-size threshold for small banks would prove beneficial to many
community banks located in rural areas with few low- and moderate-
income census tracts. A few commenters suggested that asset-size
thresholds of $1 billion and $10 billion for small and large banks,
respectively, would better reflect bank capacity and compliance
resource availability. Another commenter stated that an asset-size
threshold cap on intermediate banks of $3 billion would be a better
representation of the median large bank in its State and region. One
commenter argued that setting the asset-size thresholds for small banks
and intermediate banks at $1 billion and $3 billion, respectively,
would provide significant regulatory relief for smaller banks and free
up resources for the agencies to focus on the largest banks and banks
with poor CRA performance. Similarly, another commenter stated that any
bank with assets between $1 billion and $15 billion should be
classified as an intermediate bank to reduce regulatory burden.
A commenter cited rapid growth in bank balance sheets due to bank
consolidation and monetary and fiscal policy as reasons to further
raise the small and intermediate bank asset-size thresholds, to a small
bank threshold of $750 million and a large bank threshold of $2.5
billion. Another commenter cited similar reasons in support of a $1
billion asset-size threshold for small banks. Another commenter
suggested a small bank asset-size threshold ranging anywhere between $2
billion and $5 billion and a large bank asset-size threshold of $10
billion due to the growth in bank balance sheets.
Further, some commenters stated that the asset-size thresholds
should better reflect the distribution of small, intermediate, and
large banks when these categories were originally established. Many
commenters stated that, to maintain a similar percentage distribution
of banks in the intermediate bank category to the distribution of
intermediate small banks when that category was established in 2005, an
intermediate bank should be any bank with assets between $600 million
and $3.3 billion. Another commenter agreed that the agencies should
attempt to maintain a similar percentage distribution of intermediate-
sized institutions as in 2005. The commenter also indicated that a
large bank threshold of $5 billion would likewise achieve this outcome.
A different commenter suggested that any bank with assets between $1
billion and $5 billion should be categorized as an intermediate bank to
adjust for inflation since the asset-size thresholds were originally
set.
Some commenters noted that setting the intermediate bank asset-size
threshold at $10 billion would serve to eliminate the proposal's
distinction between two tiers of large banks.\104\ For example, a
commenter stated that a $10 billion asset-size threshold for large
banks would eliminate the confusion associated with the agencies'
proposal to designate two tiers of large banks in which only the
largest large banks would have comprehensive data collection and
reporting requirements. Another commenter suggested that the agencies
create an additional ``large community bank'' evaluation tier for banks
with $2 billion to $10 billion in assets; alternatively, the commenter
suggested that the agencies expand the intermediate bank tier to banks
with assets of $10 billion or less.
---------------------------------------------------------------------------
\104\ The proposed and final rule apply certain aspects of the
final rule to large banks with assets greater than $10 billion. See
the section-by-section analysis discussion of Sec. Sec. __.22 and
__.42.
---------------------------------------------------------------------------
Similarly, several commenters stated that the agencies should
consider raising the asset-size threshold for large banks because the
proposal is based on an incorrect perception that a bank with assets
slightly over $2 billion is the peer of a significantly larger regional
bank with $50 billion in assets--or an even larger institution with a
nationwide presence. A few commenters also noted that financial
regulators often consider a bank with less than $10 billion in assets a
``community bank'' for supervisory purposes. A few other commenters
concurred that banks with assets between $2 billion and $10 billion are
typically considered to be community banks. Another commenter,
recommending a large bank asset-size threshold of $5 billion, asserted
that raising the asset-size threshold for large banks would minimize
unfair comparison of larger intermediate-size institutions with
significantly larger banks. One other commenter suggested raising the
intermediate bank asset-size threshold so that more banks would have
the option of being evaluated under the status quo community
development test, as the agencies proposed for intermediate banks
(referred to in the proposal as the intermediate bank community
development evaluation).
A few commenters suggested that the agencies conform increased
asset-size thresholds with other existing thresholds. A commenter
stated that the agencies should set the asset-size threshold for small
banks at $750 million to conform with the U.S. Small Business
Administration's (SBA) size standard for small banks.\105\ The
commenter also stated that the asset-size threshold for intermediate
banks should be increased to $2.5 billion, an amount that would more
closely approximate the Board's threshold of $3 billion to distinguish
between small and large bank holding companies. Several commenters
stated that the small bank asset-size threshold should be $1 billion,
to be consistent with the proposed definition of ``community bank'' in
the 2012 FDIC Community Banking Study.\106\ A few other commenters
suggested that large banks should have assets of $10 billion or more to
maintain consistency with regulatory definitions in the Dodd-Frank Act.
Another commenter suggested that the agencies follow the National
Credit Union Administration's (NCUA) position that institutions that it
supervises are ``large'' when they have greater than $15 billion in
assets.
---------------------------------------------------------------------------
\105\ See infra note 113.
\106\ See FDIC, ``Community Banking Study'' (Dec. 2012), <a href="https://www.fdic.gov/resources/community-banking/report/2012/2012-cbi-study-full.pdf">https://www.fdic.gov/resources/community-banking/report/2012/2012-cbi-study-full.pdf</a>.
---------------------------------------------------------------------------
Final Rule
The agencies considered commenters' concerns and recommendations
related to the proposed asset-size thresholds. As a part of that
process, the agencies observed that commenters did not coalesce around
a particular asset-size framework that would address their respective
concerns related to the proposed asset-size framework. In fact, the
opposite was true, as commenters' recommendations as to how to
structure the asset-size framework were varied and frequently unique.
The agencies conclude that the myriad comments and recommendations
reflect an absence of
[[Page 6596]]
consensus around an asset-size framework that would address all, or a
majority of, the commenters' concerns. The agencies continue to believe
that the proposed framework strikes the appropriate balance between
recognizing the capacity differences between banks of varying size and
maintaining a strong CRA evaluation framework that benefits communities
served by banks of all sizes and capacities.
The agencies also considered commenter input that the proposed
asset-size thresholds are arbitrary and not based on relevant data
analysis. The agencies believe increasing the asset-size threshold for
small banks to $600 million is appropriate based on an analysis of
industry asset data, current CRA asset-size thresholds, supervisory
experience with those thresholds, and bank asset-size standards
employed by other agencies. First, as discussed in the proposal, the
agencies analyzed Call Report and the FDIC's Summary of Deposits data
to estimate how the proposed asset-size thresholds would redistribute
banks throughout the proposed categories. The agencies estimated that
the proposed change to the small bank asset threshold would result in
approximately 778 banks, representing two percent of all deposits,
transitioning from the current intermediate-small bank category to the
proposed small bank category. The agencies further estimated that the
proposed increase in the large bank asset-size threshold would result
in approximately 216 banks representing approximately two percent of
all deposits transitioning from the current large bank category to the
proposed intermediate bank category.\107\ The agencies communicated the
findings of this analysis as a part of the proposal to ensure that the
public was apprised of the potential redistribution of banks across the
proposed framework.\108\ Second, the agencies, over the multi-decade
period since the CRA was enacted, have developed supervisory experience
related to the asset-size thresholds and an understanding of the
capacity of banks in each class of bank to engage in CRA activity, and
incorporated that understanding into the consideration of the proposed
asset-size thresholds. Based on this supervisory experience, the
agencies calibrated the level of CRA requirements to bank size,
consistent with the statutory purpose and the agencies' objective of
encouraging banks to meet the credit needs of their communities. Third,
the agencies considered adopting the SBA's ``small bank'' definition,
but ultimately elected to adopt the $600 million asset-size threshold
because it is better aligned with the CRA's policy goals, and the
agencies believe that banks with assets between $600 and $850 million
have the capacity to engage in community development activity.
---------------------------------------------------------------------------
\107\ The agencies based these estimates on average assets from
2020 and 2021 Call Report data and the FDIC's 2021 Summary of
Deposits data. These statistics included some banks with no CRA
obligations, such as banker's banks.
\108\ See 87 FR 33884, 33924 n. 162 (June 3, 2022).
---------------------------------------------------------------------------
The agencies believe that the asset-size framework in the final
rule strengthens the agencies' implementation of the CRA statute and
furthers the CRA statute's emphasis on assessing the records of banks
of all asset sizes in meeting the credit needs of their entire
communities, including low- and moderate-income neighborhoods. The
final rule also implements the CRA statutory provisions that focus
specifically on MDIs, WDIs, and LICUs.\109\ As discussed above, CRA and
fair lending laws such as ECOA and the Fair Housing Act are mutually
reinforcing. Specifically, under the CRA, the agencies assess banks'
records of helping meet the credit needs of the entire community,\110\
while fair lending laws serve to identify and address lending
discrimination for protected classes, such as race and ethnicity.
---------------------------------------------------------------------------
\109\ See 12 U.S.C. 2903(b) and 2907(a).
\110\ For more information and discussion regarding the
agencies' consideration of comments recommending adoption of
additional race- and ethnicity-related provisions in this final
rule, see section III.C of this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------
Under the final rule, intermediate banks and small banks may
receive additional consideration at the institution level for
activities with MDIs, WDIs, and LICUs, which, as noted, reflects CRA
statutory provisions. For example, under the final rule a small or
intermediate bank can receive consideration for a capital investment,
loan participation or other venture with an MDI. An intermediate bank
or small bank that opts into the Retail Services and Products Test may
receive CRA consideration for bank credit products and programs that
are conducted in cooperation with MDIs and Special Purpose Credit
Programs as examples of credit products and programs that are
responsive to the needs of the communities in which the bank operates,
including the needs of low- and moderate-income individuals, families,
and households; small businesses; and small farms. The final rule also
retains the current prohibition against banks, including intermediate
banks and small banks, delineating facility-based assessment areas in a
manner that reflects illegal discrimination or that arbitrarily
excludes low- and moderate-income census tracts; and retains the
current provision regarding discriminatory or other illegal credit
practices that can adversely affect a bank's CRA performance.
Further, both intermediate banks and small banks continue to have
retail lending requirements. Under the final rule, intermediate banks
are evaluated under the Retail Lending Test in final Sec. __.22, and
either the Intermediate Bank Community Development Test in final Sec.
__.30(a)(2) or, at the bank's option, the Community Development
Financing Test in final Sec. __.24.\111\ Likewise, under the final
rule, small banks are evaluated under the Small Bank Lending Test, in
final Sec. __.29(a)(2) or, at the bank's option, the Retail Lending
Test in final Sec. __.22.\112\
---------------------------------------------------------------------------
\111\ See the section-by-section analysis of final Sec. __.30.
\112\ See the section-by-section analysis of final Sec. __.29.
---------------------------------------------------------------------------
Additional bank asset-size categories. A few commenters suggested
that the agencies create a new category for banks with assets much
higher than the proposed $2 billion large bank asset-size threshold and
apply the most demanding performance tests or data reporting and
collection requirements solely to those banks. According to commenters,
including a category for the largest banks would help the agencies to
better tailor CRA requirements for smaller large banks. A commenter
explained that the agencies could impose the most demanding
requirements on ``super large'' banks with greater than $50 billion in
assets. Similarly, another commenter suggested the creation of a ``mega
bank'' category for banks with assets greater than $100 billion on
which the agencies could impose unique performance test structures and
standards. Another commenter questioned why the agencies did not apply
the large bank requirements exclusively to banks with greater than $100
billion in assets, a decision that according to the commenter, would
capture 75 percent of total industry assets. One other commenter
recommended that the agencies combine the proposed intermediate bank
and large bank categories, so that there would only be categories for
small and large banks in the final rule.
The agencies considered the commenters' concerns but are not
adopting additional asset-size categories
[[Page 6597]]
for banks with assets significantly greater than the proposed asset-
size threshold for large banks--e.g., ``super large'' or ``mega bank''
categories for institutions with assets over $50 billion and $100
billion, respectively. Applying certain aspects of the large bank
performance test only to very large banks in the manner suggested by
commenters would reduce the number of banks subject to certain aspects
of the performance tests and could thereby discourage CRA activity by
some banks. Similarly, the agencies did not adopt commenters'
suggestion to eliminate the intermediate bank category in the final
rule. The agencies believe that the three size categories of banks in
the final rule effectively balance bank capacity with the obligation of
a bank to meet the needs of its community. Removing an asset-size
category would reduce tailoring of the CRA performance tests based on
bank capacity. Depending on which asset-size category were removed, for
example, more banks might be classified as small banks, potentially
countering the agencies' goal of encouraging banks with a meaningful
capacity to engage in community development activities, or more
performance tests would apply to banks that potentially lack the
capacity to meet those tests' parameters, increasing regulatory burden.
SBA size standards for small banks. The agencies specifically
requested feedback on whether they should adopt an asset-size threshold
for small banks that differs from the SBA's then small bank asset-size
standard of $750 million.\113\ Several commenters supported the
agencies conforming to the SBA's small bank asset-size standard, with
some specifically stating that consistency across Federal agencies
should be maintained wherever possible. In contrast, some commenters
found the SBA's small bank asset-size standard of $750 million too
high, for the same reasons provided by commenters who found the
proposed size standards of $600 million too high, as discussed above.
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\113\ The SBA's applicable asset-size standards are set forth in
13 CFR 121.201, Sector 52--Finance and Insurance, Subsector 522--
Credit Intermediation and Related Activities (specifically, North
American Industry Classification System (NAICS) codes 522110 and
522180). At the time of the proposed rule's publication date, the
SBA's small bank asset-size threshold was $750 million. The SBA
revised this asset-size standard, as of December 19, 2022, from $750
million to $850 million in assets, determined by averaging the
assets reported on the depository institution's four quarterly
financial statements for the preceding year. See 87 FR 69118, 69128
(Nov. 17, 2022).
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The agencies recognize that consistency across Federal agencies is
generally desirable, but the agencies believe that deviating from the
SBA's small bank asset-size standard is appropriate to meet the CRA's
statutory purpose. In particular, applying the SBA's $850 million small
bank asset-size standard in the CRA framework would significantly
increase the number of banks that would be classified as small banks.
This might, in turn, result in less community development activity
relative to the current CRA regulations or proposal because fewer banks
would be evaluated under the status quo community development
test.\114\ Such a development would be counter to the CRA statute's
purposes and the agencies' CRA modernization objectives.
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\114\ Based on an analysis of current bank size characteristics,
the agencies estimate that the $600 million small bank asset-size
threshold would result in approximately 609 banks that are required
to comply with the CRA rule--representing approximately 13 percent
of all banks--transitioning to the small bank category. However, if
the agencies were to incorporate an $850 million asset-size standard
in the CRA regulations, the agencies estimate that this would lead
to approximately 957 current intermediate small banks that are
required to comply with the CRA rule, representing approximately 21
percent of all banks, transitioning from the current intermediate
small bank category to the small bank category. Estimates are based
on year-end assets from 2021 and 2022 Call Report data.
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Inflation adjustments to asset-size thresholds. Several commenters
expressed support for the agencies' proposal to adjust the asset-size
thresholds for small, intermediate, and large banks annually for
inflation. However, a few commenters expressed concerns. A commenter
stated that, although the proposed inflation adjustments may seem
reasonable, they could have the unintended consequence of decreasing
investments in low- and moderate-income communities when banks are
reclassified to a smaller asset-size category. A few other commenters
stated that inflation adjustments tied to the CPI-W do not take into
account major changes, including consolidation, that have occurred in
the banking industry over the past decade.
The agencies considered the commenters' feedback and elected to
maintain the proposed annual inflation adjustment methodology in the
final rule. The agencies believe the proposed methodology, whereby
asset-size thresholds would be adjusted annually for inflation based on
the annual percentage change in the CPI-W, is preferable due to its
alignment with the current CRA regulations' annual inflation
adjustments to the asset-size thresholds. With respect to commenters'
concerns about unintended consequences associated with banks moving
into lower asset-size categories, the agencies recognize that this is a
potential outcome associated with employing an annual inflation
adjustment to the asset-size thresholds. However, the agencies believe
the benefits of employing an annual inflation adjustment mechanism
outweigh this concern, because it mitigates the risk of needing to
employ large or unpredictable increases to realign the asset-size
thresholds with conditions in the banking industry. Further, utilizing
ad hoc adjustments to the asset-size thresholds, which would be less
predictable and less stable, could mean more movement of banks from one
size category to another from year-to-year, which inherently creates
uncertainty for banks and stakeholders. Moreover, if the agencies
declined to include an annual inflation adjustment mechanism, a
scenario could develop where institutions would graduate into higher
size categories due to inflation regardless of whether their financial
condition or capabilities to engage in CRA activity have changed.
Finally, the agencies note that the annual asset-size threshold
adjustment methodology is not designed to account for industry changes
such as consolidation. Rather, the methodology is designed to ensure
that the asset-size thresholds evolve with economic conditions.
Asset-size threshold alternatives. A few commenters cautioned
against the agencies placing too much reliance on asset-size thresholds
to determine which performance tests apply to a particular bank. These
commenters stated that the agencies should consider various factors
such as a bank's business model, risk profile, areas of specialization,
communities served, assessment area sizes, presence in an assessment
area, staffing levels, and technology limitations. A few other
commenters suggested that, under an ``alternate prong'' in the large
bank definition, the agencies should designate a bank as a large bank
if it makes a certain amount of loans in an evaluation period, even if
its asset size would otherwise qualify it as a small or intermediate
bank. These commenters asserted that this alternate prong would account
for situations where a bank claims to be the ``true lender'' for loans
that it makes with support from a third party.
The agencies considered commenter feedback that the final rule
should include alternative formulations to determine which performance
tests apply to a bank. The agencies believe that alternative
formulations for the baseline determination of which performance tests
apply to a bank, including adding factors such as risk
[[Page 6598]]
profile, areas of specialization, technology limitations, and others,
would increase the complexity of the final rule and its administration
without meaningfully furthering the agencies' CRA objectives.
Therefore, the agencies are maintaining asset size as the sole factor
for purposes of categorizing most institutions in the final rule.
However, as discussed throughout this SUPPLEMENTARY INFORMATION, the
agencies have incorporated performance context information into
performance test metrics and benchmarks, as well as express
consideration of qualitative factors in evaluating a bank's
performance, which include, among others, business model.\115\ In
addition, the agencies have retained a distinct evaluation approach for
limited purpose banks,\116\ as well as the option for banks to be
evaluated under a strategic plan.\117\
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\115\ See, e.g., final Sec. Sec. __.21(d) and __.22(g) and the
accompanying section-by-section analyses.
\116\ See final Sec. Sec. __.12 (definition of ``limited
purpose bank'') and __.26 and the accompanying section-by-section
analyses.
\117\ See final Sec. __.27 and the accompanying section-by-
section analysis.
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Asset-size threshold calculations. A commenter requested
clarification regarding how the agencies propose to determine a bank's
asset size. The commenter noted that the proposal defines a small bank
as a bank that had average assets of less than $600 million in either
of the prior two calendar years, based on the assets reported on its
four quarterly Call Reports for each of those calendar years. The
commenter requested that the agencies clarify whether a bank must have
average assets of less than $600 million at each quarter-end versus the
current method that considers year-end values.
After considering this comment, the agencies have decided to retain
the asset-size calculation methodology in the current CRA regulations,
which provides that asset size is calculated as of the end of a
calendar year without reference to quarterly Call Report figures.\118\
This methodology is simpler than the proposed formula, it is widely
understood,\119\ and retaining it will minimize complexity in the final
rule.
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\118\ As a result of retaining the current year-end asset-size
calculation, the agencies estimate that the number of small banks
will decrease from 3252 (NPR asset-size calculation methodology) to
3219 banks, the number of intermediate banks will increase from 883
(NPR asset-size calculation methodology) to 889, and the number of
large banks will increase from 492 (NPR asset-size calculation
methodology) to 519. Numbers are for banks that are required to
comply with the CRA regulation; estimates are based on year-end
assets from 2021 and 2022 Call Report data.
\119\ See current 12 CFR __.12(u)(1).
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For the reasons discussed above, the agencies are adopting the
proposed definitions of ``small bank,'' ``intermediate bank,'' and
``large bank'' in the final rule, with two substantive changes. First,
the agencies are adding the clause, ``excluding a bank designated as a
limited purpose bank \120\ pursuant to Sec. __.26,'' to each of the
three definitions to clarify that a bank designated as a limited
purpose bank that also falls into one of the asset-size categories is
evaluated as a limited purpose bank and not a small, intermediate, or
large bank, with the attendant requirements of the performance tests
that would otherwise be applicable to such a bank.\121\ Second, the
agencies have changed the asset-size calculation methodology to reflect
assets held at year-end, instead of at each quarter-end, as proposed.
The agencies have also made minor technical wording changes.
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\120\ As discussed below, in the definition of ``limited purpose
bank,'' the agencies have combined limited purpose banks and
wholesale banks into one category, ``limited purpose banks.''
\121\ For limited purpose bank evaluations, see final Sec. Sec.
__.21(a)(4) and __.26 and the accompanying section-by-section
analyses.
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Accordingly, in the final rule, ``small bank'' means a bank,
excluding a bank designated as a limited purpose bank pursuant to Sec.
__.26, that had assets of less than $600 million as of December 31 in
either of the prior two calendar years. ``Intermediate bank'' means a
bank, excluding a bank designated as a limited purpose bank pursuant to
Sec. __.26, that had assets of at least $600 million as of December 31
in both of the prior two calendar years and less than $2 billion as of
December 31 in either of the prior two calendar years. ``Large bank''
means a bank, excluding a bank designated as a limited purpose bank
pursuant to Sec. __.26, that had assets of at least $2 billion as of
December 31 in both of the prior two calendar years. For all three
definitions, the agencies adjust and publish the asset-size thresholds
annually, based on the year-to-year change in the average of the CPI-W,
not seasonally adjusted, for each 12-month period ending in November,
with rounding to the nearest million.
As indicated above, and in the proposal, the agencies believe that
these asset-size thresholds appropriately balance the agencies'
objectives of meeting the CRA's purpose of encouraging banks to meet
the credit needs of their communities and recognizing differences in
bank capacity based on asset size.
In accordance with the Small Business Act \122\ and its
implementing regulations,\123\ the agencies sought and received
approval from the SBA to deviate from the SBA's asset-size standard
applicable to small depository institutions--i.e., small banks.
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\122\ 15 U.S.C. 632(a)(2)(C).
\123\ 13 CFR 121.903.
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Branch
Current Approach and the Agencies' Proposal
The agencies proposed to update the current definition of
``branch'' without materially changing the substantive meaning of this
term. The current CRA regulations define ``branch'' to mean a staffed
banking facility authorized as a branch, whether shared or unshared,
including, for example, a mini-branch in a grocery store or a branch
operated in conjunction with any other local business or nonprofit
organization.\124\ Under the proposal, ``branch'' would mean a staffed
banking facility, whether shared or unshared, that is approved or
authorized as a branch by the appropriate Federal financial supervisory
agency and that is open to, and accepts deposits from, the general
public.
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[…truncated; see source link]Indexed from Federal Register on February 1, 2024.
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