Community Reinvestment Act

Cited as:85 FR 66410
Court:Federal Reserve System
Publication Date:19 Oct 2020
Record Number:2020-21227
66410
Federal Register / Vol. 85, No. 202 / Monday, October 19, 2020 / Proposed Rules
1
12 U.S.C. 2901 et seq. The Board implements
the CRA through Regulation BB. 12 CFR part 228.
2
‘‘Regulated financial institution’’ means an
‘‘insured depository institution’’ as defined in 12
U.S.C. 1813. See 12 U.S.C. 2902(2). ‘‘Insured
depository institution’’ means any bank or savings
association whose deposits are insured by the
Federal Deposit Insurance Corporation. See 12
U.S.C. 1813(c)(2).
FEDERAL RESERVE SYSTEM
12 CFR Part 228
[Regulation BB; Docket No. R–1723]
RIN 7100–AF94
Community Reinvestment Act
AGENCY
: Board of Governors of the
Federal Reserve System.
ACTION
: Advance notice of proposed
rulemaking; request for comment.
SUMMARY
: The Board of Governors of the
Federal Reserve System (Board) is
publishing for public comment an
advance notice of proposed rulemaking
(ANPR) to solicit public input regarding
modernizing the Board’s Community
Reinvestment Act regulatory and
supervisory framework. The Board is
seeking comment on all aspects of the
ANPR from all interested parties and
also requests commenters to identify
other issues that the Board should
consider.
DATES
: Comments on this ANPR must be
received on or before February 16, 2021.
ADDRESSES
: You may submit comments,
identified by Docket No. R–1723 and
RIN 7100–AF94, by any of the following
methods:
Agency Website: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
Email: regs.comments@
federalreserve.gov. Include docket and
RIN numbers in the subject line of the
message.
FAX: (202) 452–3819 or (202) 452–
3102.
Mail: Ann E. Misback, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW, Washington,
DC 20551.
Instructions: All public comments are
available from the Board’s website at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical
reasons or to remove personally
identifiable information at the
commenter’s request. Accordingly,
comments will not be edited to remove
any identifying or contact information.
Public comments may also be viewed
electronically or in paper in Room 146,
1709 New York Avenue NW,
Washington, DC 20006, between 9:00
a.m. and 5:00 p.m. on weekdays. For
security reasons, the Board requires that
visitors make an appointment to inspect
comments. You may do so by calling
(202) 452–3684. Upon arrival, visitors
will be required to present valid
government-issued photo identification
and to submit to security screening in
order to inspect and photocopy
comments.
FOR FURTHER INFORMATION CONTACT
: S.
Caroline (Carrie) Johnson, Manager,
Division of Consumer and Community
Affairs, (202) 452–2762; Catherine M.J.
Gates, Senior Project Manager, Division
of Consumer and Community Affairs,
(202) 452–2099; Amal S. Patel, Counsel,
Division of Consumer and Community
Affairs, (202) 912–7879, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue NW, Washington, DC 20551.
For users of Telecommunication Device
for Deaf (TDD) only, (202) 263–4869.
SUPPLEMENTARY INFORMATION
:
I. Introduction: Request for Feedback,
Objectives, and Overview
In this ANPR, the Board requests
feedback on different approaches to
modernizing the regulatory and
supervisory framework for the
Community Reinvestment Act (CRA)
1
in order to more effectively meet the
needs of low- and moderate-income
(LMI) communities and address
inequities in credit access. This
includes seeking feedback from
stakeholders regarding, among other
things, accounting for changes in the
banking system, applying metrics to
certain CRA evaluation standards, and
providing greater clarity regarding CRA-
eligible activities. The Board is also
mindful of the economic impact of the
COVID–19 pandemic, particularly on
LMI communities and households, and
seeks feedback on how it should
consider these impacts in CRA
modernization.
In addition to requesting comment on
all topics raised below, this ANPR also
includes specific questions that are
numbered consecutively. Commenters
are requested to refer to these question
numbers in their submitted comments,
which will assist the Board in its efforts
as well as members of the public that
review comments online.
The contemplated changes to
Regulation BB are guided by the
following objectives:
More effectively meet the needs of
LMI communities and address
inequities in credit access, in
furtherance of the CRA statute and its
core purpose.
Increase the clarity, consistency,
and transparency of supervisory
expectations and of standards regarding
where activities are assessed, which
activities are eligible for CRA purposes,
and how eligible activities are evaluated
and assessed, while seeking to minimize
the associated data burden and to tailor
collection and reporting requirements.
Tailor CRA supervision of financial
institutions (banks)
2
to reflect:
ÆDifferences in bank sizes and
business models;
ÆDifferences in local markets, needs,
and opportunities, including with
respect to small banks serving rural
markets; and
ÆExpectations across business
cycles.
Update standards in light of
changes to banking over time,
particularly the increased use of mobile
and internet delivery channels.
Promote community engagement.
Strengthen the special treatment of
minority depository institutions (MDIs).
Recognize that CRA and fair
lending responsibilities are mutually
reinforcing.
The Board seeks public input on
different policy options to carry out the
above objectives in several key areas
and looks forward to assessing this
input to advance the goal of
strengthening the CRA regulation. The
ANPR includes the below sections.
Background. Section II discusses the
CRA’s statutory history and purpose,
including a discussion of the historical
practice of redlining on the basis of race
and the enactment of the CRA and other
complementary federal civil rights laws
to address systemic inequities in access
to credit and other financial services.
The background section also provides
an overview of the Board’s existing
Regulation BB and stakeholder feedback
on CRA modernization.
Assessment Areas and Defining Local
Communities for CRA Evaluations.
Section III addresses the issue of how to
define a bank’s local communities,
which impacts where banks’ CRA
performance is evaluated and is critical
for ensuring that the CRA fulfills its
purpose of encouraging banks to meet
the credit needs of their local
communities. The Board seeks to more
predictably delineate assessment areas
around physical locations, such as bank
branches, and to ensure that assessment
areas are contiguous, do not reflect
illegal discrimination, do not arbitrarily
exclude LMI census tracts, and are
tailored to bank size and performance
context. For large banks that conduct a
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CRA hot spots are areas where large numbers of
banks concentrate CRA and other banking activities
in the same, relatively small number of localities.
4
CRA deserts are areas with little bank presence
and corresponding lesser availability of banking
products and services and community development
activities.
significant amount of lending and
deposit-based collection far from their
branches, the Board seeks comment on
deposit-based and lending-based
alternative approaches to delineating
assessment areas. For internet banks, the
Board is also considering whether
nationwide assessment areas could
more holistically capture their banking
activities.
Overview of Evaluation Framework.
Section IV provides an overview of the
Board’s proposed framework for
evaluating banks’ CRA performance
with a Retail Test and a Community
Development Test. The Retail Test
would include two subtests: A Retail
Lending Subtest and a Retail Services
Subtest. The Community Development
Test would also include two subtests: A
Community Development Financing
Subtest and a Community Development
Services Subtest. This section proposes
tailoring these tests based on differences
in bank asset size and business models.
The Board proposes an asset-size
threshold of $750 million or $1 billion
to distinguish between small and large
retail banks. Small retail banks could
continue to be evaluated under the
current CRA framework, but would have
the option to be evaluated under the
Retail Lending Subtest alone and could
also elect to have their retail services
and community development activities
evaluated. Large retail banks would be
evaluated under all four subtests.
Wholesale and limited purpose banks
would be evaluated under the two
community development subtests.
Alternatively, any bank would have the
option to be evaluated pursuant to an
approved strategic plan.
Retail Test. Section V describes the
two subtests of the proposed Retail Test.
For the Retail Lending Subtest, the
Board proposes a metrics-based
approach that is tailored based on a
bank’s major product lines and on the
credit needs and opportunities within
its assessment area(s). For the Retail
Services Subtest, the Board proposes a
qualitative approach that is intended to
provide greater predictability and
transparency for evaluating important
aspects of retail banking services,
including branches, other delivery
systems, and deposit products. Section
VI discusses updating and clarifying
certain aspects of Retail Test qualifying
activities, including the designation of
major product lines, the evaluation of
consumer loan products, the definitions
of small business and small farm loans,
and the consideration of retail activities
conducted in Indian Country.
Community Development Test.
Section VII describes the two subtests of
the proposed Community Development
Test: A Community Development
Financing Subtest and a Community
Development Services Subtest. The
Board proposes a metrics-based
approach to evaluating community
development financing activities that is
transparent, predictable, and tailored to
the community development needs and
opportunities within an assessment
area. For the Community Development
Services Subtest, the Board proposes
evaluating community development
services in a way that better recognizes
the value of qualifying volunteer
activities, especially in rural
communities.
Section VIII discusses proposals for
clarifying and updating Community
Development Test qualifying activities
pertaining to affordable housing,
community services, economic
development, and revitalization and
stabilization, and discusses updating
how activities outside of a bank’s
assessment areas would be considered.
The Board seeks to emphasize
qualifying activities that support MDIs
and Community Development Financial
Institutions (CDFIs). In addition, the
Board is considering how to treat
community development activities
outside of assessment areas to help
address discrepancies between so-called
CRA ‘‘hot spots’’
3
and ‘‘deserts.’’
4
The
Board seeks feedback on defining
designated areas of need—for example,
in Indian Country or in areas that meet
an ‘‘economically distressed’’
definition—where banks could conduct
community development activity
outside of an assessment area. The
Board also seeks feedback on
approaches to increase the upfront
certainty about what activities qualify
for CRA credit, including a process for
banks and other stakeholders to obtain
pre-approval that a particular activity
qualifies for consideration and
publication of illustrative lists of
qualifying activities.
Strategic Plans. In Section IX, the
Board seeks feedback on proposed
revisions to the strategic plan option for
CRA performance evaluations to
provide more clarity and flexibility
about establishing strategic plans and
the standards used to assess activities.
Ratings. In Section X, the Board
discusses updating the way in which
state, multistate metropolitan statistical
area (MSA), and institution ratings are
reached, basing these ratings in local
assessment area conclusions for the
different subtests, as applicable. For
example, the Board proposes assigning
a bank’s overall rating on the Retail Test
by using a weighted average of each of
the bank’s assessment area-level
conclusions. The Board believes it is
appropriate to anchor a bank’s overall
rating in its performance in all of its
local communities, and therefore
proposes to eliminate the designation of
full- and limited-scope assessment areas
in the evaluation process. Certain
activities outside of a bank’s assessment
area(s) would also be considered in
determining overall ratings, such as a
partnership with an MDI, which could
be considered as part of a pathway to an
‘‘outstanding’’ rating. The Board also
seeks to update the consideration of
discrimination and other illegal credit
practices in determining CRA ratings by
adding violations of new laws and
regulations that are related to meeting
community credit needs.
Data Collection and Reporting. In
Section XI, the Board solicits feedback
on potential revisions to data collection
and reporting requirements. The Board
is mindful of the potential tradeoff
between the expanded use of metrics to
provide greater certainty and
consistency and the expanded need for
data collection and reporting, and has
prioritized using existing data wherever
possible. The Board has also prioritized
approaches that would exempt small
banks from new data collection
requirements. In addition, the Board
seeks feedback on deposits data options
for large banks, and in particular for
large banks with extensive deposit
activity outside of the areas served by
their physical branches. The Board
seeks feedback on how to balance the
certainty provided through the use of
metrics in CRA performance evaluations
with the potential data burden
implications.
Request for Feedback:
Question 1. Does the Board capture
the most important CRA modernization
objectives? Are there additional
objectives that should be considered?
II. CRA Background
The Board implements the CRA
through Regulation BB. The CRA is
designed to encourage regulated
financial institutions to help meet the
credit needs of their entire
communities, including LMI
neighborhoods, in which they are
chartered. Under Regulation BB, the
Board applies different evaluation
standards to banks of different asset
sizes and types.
Together with the Federal Deposit
Insurance Corporation (FDIC) and the
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See 81 FR 48506 (July 25, 2016). ‘‘Interagency
Questions and Answers’’ refers to the ‘‘Interagency
Questions and Answers Regarding Community
Reinvestment’’ in its entirety. ‘‘Q&A’’ refers to an
individual question and answer within the
Interagency Questions and Answers.
6
See, e.g., Chairman Ben S. Bernanke, Board of
Governors of the Federal Reserve System, ‘‘The
Community Reinvestment Act: Its Evolution and
New Challenges’’ (March 30, 2007), https://
www.federalreserve.gov/newsevents/speech/
Bernanke20070330a.htm (‘‘After years of
experimentation, the managers of financial
institutions found that these loan portfolios, if
properly underwritten and managed, could be
profitable.... Moreover, community groups and
nonprofit organizations began to take a more
businesslike, market-oriented approach to local
economic development, leading them to establish
more-formalized and more-productive partnerships
with banks. Community groups provided
information to financial institutions on the needs of
lower-income communities for credit and services,
offered financial education and counseling services
to community members, and referred ‘bankable’
customers to partner banks. Specialized community
development banks and financial institutions with
the mission of providing financial services and
credit to lower-income communities and families
emerged and grew.’’).
7
See Bernanke, ‘‘The Community Reinvestment
Act: Its Evolution and New Challenges’’ (‘‘Public
and congressional concerns about the deteriorating
condition of America’s cities, particularly lower-
income and minority neighborhoods, led to the
enactment of the Community Reinvestment Act.
. . . Several social and economic factors help
explain why credit to lower-income neighborhoods
was limited at that time. First, racial discrimination
in lending undoubtedly adversely affected local
communities. Discriminatory lending practices had
deep historical roots.’’).
8
See, e.g., Michael Berry, Federal Reserve Bank
of Chicago, and Jessie Romero, Federal Reserve
Bank of Richmond, ‘‘Federal Reserve History:
Community Reinvestment Act of 1977,’’ https://
www.federalreservehistory.org/essays/community_
reinvestment_act (also explaining that other federal
and state policies likewise contributed to redlining
and additional discriminatory practices).
9
See ‘‘Mapping Inequality: Redlining in New
Deal America,’’ https://dsl.richmond.edu/
panorama/redlining/#loc=5/39.1/-94.58 (archive of
HOLC maps).
10
See, e.g., Daniel Aaronson, Daniel Hartley, and
Bhashkar Mazumder, Federal Reserve Bank of
Chicago, ‘‘The Effects of the 1930s HOLC
‘Redlining’ Map’’ (Feb. 2019), https://
www.chicagofed.org/publications/working-papers/
2017/wp2017-12, p.1 (‘‘Neighborhoods were
classified based on detailed risk-based
characteristics, including housing age, quality,
occupancy, and prices. However, non-housing
attributes such as race, ethnicity, and immigration
status were influential factors as well. Since the
lowest rated neighborhoods were drawn in red and
often had the vast majority of African American
residents, these maps have been associated with the
so-called practice of ‘redlining’ in which borrowers
are denied access to credit due to the demographic
composition of their neighborhood.’’).
11
123 Cong. Rec. 17630 (June 6, 1977).
12
See, e.g., Governor Lael Brainard,
‘‘Strengthening the Community Reinvestment Act
by Staying True to Its Core Purpose’’ (Jan. 8, 2020),
https://www.federalreserve.gov/newsevents/speech/
brainard20200108a.htm (‘‘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.’’).
13
15 U.S.C. 1691 et seq.
14
42 U.S.C. 3601 et seq.
15
12 U.S.C. 2801 et seq.
16
Dionissi Aliprantis and Daniel Carroll, Federal
Reserve Bank of Cleveland, ‘‘What is Behind the
Persistence of the Racial Wealth Gap’’ (Feb. 28,
2019), https://www.clevelandfed.org/newsroom-
and-events/publications/economic-commentary/
2019-economic-commentaries/ec-201903-what-is-
behind-the-persistence-of-the-racial-wealth-
gap.aspx. See also, e.g., The New York Times,
‘‘How Redlining’s Racist Effects Lasted for
Decades’’ (Aug. 24, 2017), https://
www.nytimes.com/2017/08/24/upshot/how-
redlinings-racist-effects-lasted-for-decades.html
(citing William J. Collins and Robert A. Margo,
‘‘Race and Home Ownership from the End of the
Civil War to the Present’’ (Nov. 2010) in stating,
‘‘The black-white gap in homeownership in
America has in fact changed little over the last
century .... That pattern helps explain why, as
the income gap between the two groups has
persisted, the wealth gap has widened by much
more.’’).
17
12 U.S.C. 2901(a).
Office of the Comptroller of the
Currency (OCC), the Board has also
published Interagency Questions and
Answers Regarding Community
Reinvestment (Interagency Questions
and Answers)
5
to provide guidance on
the interpretation and application of the
agencies’ CRA regulations.
A. CRA Statutory Purpose and History
The CRA invests the Board, the FDIC,
and the OCC with broad authority and
responsibility for implementing the
statute, which provides the agencies
with a crucial mechanism for addressing
persistent systemic inequity in the
financial system for LMI and minority
individuals and communities. In
particular, the statute and its
implementing regulations provide the
agencies, regulated banks, and
community organizations with the
necessary framework to facilitate and
support a vital financial ecosystem that
supports LMI and minority access to
credit and community development.
6
Congress enacted the CRA in 1977
primarily to address economic
challenges in predominantly minority
urban neighborhoods that had suffered
from decades of disinvestment and
other inequities.
7
Many believed that
systemic inequities in credit access—
due in large part to a practice known as
‘‘redlining’’—along with a lack of public
and private investment, was at the root
of these communities’ economic
distress.
8
Redlining occurred when
banks refused outright to make loans or
extend other financial services in
neighborhoods comprised largely of
African-American and other minority
individuals, leading to discrimination in
access to credit and less favorable
financial outcomes even when they
presented the same credit risk as others
residing outside of those neighborhoods.
The term is widely associated with the
former federal Home Owners’ Loan
Corporation (HOLC), which employed
color-coded maps
9
to designate its
perception of the relative risk of lending
in a range of neighborhoods, with
‘‘hazardous’’ (the highest risk) areas
coded in red. Redlined neighborhoods
typically had a high percentage of
minority residents, were
overwhelmingly poor, and had less
desirable housing.
10
As Senator William
Proxmire, who authored the CRA
legislation, testified when discussing its
purpose:
By redlining let me make it clear what I am
talking about. I am talking about the fact that
banks and savings and loans will take their
deposits from a community and instead of
reinvesting them in that community, they
will actually or figuratively draw a red line
on a map around the areas of their city,
sometimes in the inner city, sometimes in the
older neighborhoods, sometimes ethnic and
sometimes black, but often encompassing a
great area of their neighborhood.
11
Against this backdrop, Congress
passed the CRA, along with other
complementary federal civil rights laws
during the late 1960s and 1970s, to
address systemic inequities in access to
credit and other financial services that
contributed to often dramatic
differences in economic access and
overall financial well-being.
12
In
particular, the Equal Credit Opportunity
Act (ECOA)
13
and the Fair Housing Act
(FHA)
14
fair lending laws each include
an explicit focus on discrimination on
prohibited bases such as race, and the
Home Mortgage Disclosure Act
(HMDA)
15
is intended to bring greater
transparency to mortgage lending
practices. Even with the implementation
of the CRA and the other
complementary laws, the harmful legacy
of redlining and other discriminatory
practices too often continues to be felt.
In 2016, the ‘‘wealth gap [was] roughly
the same as it was in 1962, two years
before the passage of the Civil Rights
Act of 1964[.]’’
16
In enacting the CRA, the Congress
found that: (1) Banks and savings
associations (collectively, banks) 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) banks
have a continuing and affirmative
obligation to help meet the credit needs
of the local communities in which they
are chartered.
17
The statute directed the
relevant federal financial supervisory
agencies to: Encourage the financial
institutions they supervise to safely and
soundly meet the credit needs of the
communities they serve, including LMI
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12 U.S.C. 2901(b).
19
12 U.S.C. 2903(a).
20
12 U.S.C. 2904.
21
12 U.S.C. 2905.
22
Public Law 101–73, 103 Stat. 183 (Aug. 9,
1989).
23
Public Law 102–242, 105 Stat. 2236 (Dec. 19,
1991).
24
Public Law 102–550, 106 Stat. 3874 (Oct. 28,
1992).
25
Public Law 103–328, 108 Stat. 2338 (Sept. 29,
1994).
26
Public Law 106–102, 113 Stat. 1338 (Nov. 12,
1999).
27
43 FR 47144 (Oct. 12, 1978). See also Governor
Lael Brainard, ‘‘Strengthening the Community
Reinvestment Act: What are We Learning?’’ (Feb. 1,
2019), https://www.federalreserve.gov/newsevents/
speech/brainard20190201a.htm (‘‘The central
thrust of the CRA is to encourage banks to ensure
that all creditworthy borrowers have fair access to
credit, and, to do so successfully, it has long been
recognized that they must guard against
discriminatory or unfair and deceptive lending
practices.’’).
28
60 FR 22156 (May 4, 1995); 70 FR 44256 (Aug.
2, 2005). The CRA regulations have typically been
adopted individually by each agency, but drafted on
an interagency basis and released jointly.
29
See, e.g., Chairman Jerome H. Powell, Board of
Governors of the Federal Reserve System,
‘‘Celebrating Excellence in Community
Development’’ (Dec. 3, 2018), https://
www.federalreserve.gov/newsevents/speech/
powell20181203a.htm (‘‘The Fed’s community
development function . . . advances our
Community Reinvestment Act responsibilities by
analyzing and disseminating information related to
local financial needs and successful approaches for
attracting and deploying capital. These efforts
strengthen the capacity of both financial
institutions and community organizations to meet
the needs of the communities they serve.’’).
30
12 U.S.C. 2906.
31
12 U.S.C. 2906(b)(1)(A)(i).
32
12 U.S.C. 2906(b)(1)(A)(ii) and (iii). There are
four statutory rating categories: ‘‘outstanding,’’
‘‘satisfactory,’’ ‘‘needs to improve,’’ and
‘‘substantial noncompliance.’’ 12 U.S.C. 2906(b)(2).
33
12 CFR 228.29.
34
See generally 12 CFR 228.21–.27. The Board,
the FDIC, and the OCC annually adjust the CRA
asset-size thresholds based on inflation.
neighborhoods;
18
assess their record of
doing so and take this record into
account when evaluating banking
applications for a deposit facility;
19
and
report to Congress the actions they have
taken to carry out their CRA
responsibilities.
20
The CRA also
directed each agency to publish
regulations to carry out the statute’s
purposes.
21
Since its enactment, Congress has
amended the CRA several times,
including through the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989
22
(which
required public disclosure of a bank’s
CRA written evaluation and rating); the
Federal Deposit Insurance Corporation
Improvement Act of 1991
23
(which
required the inclusion of a bank’s CRA
examination data in the determination
of its CRA rating); the Housing and
Community Development Act of 1992
24
(which included assessment of the
record of nonminority-owned and
nonwomen-owned banks in cooperating
with minority-owned and women-
owned banks and low-income credit
unions); the Riegle-Neal Interstate
Banking and Branching Efficiency Act
of 1994
25
(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
26
(which,
among other things, provided regulatory
relief for smaller banks by reducing the
frequency of their CRA examinations).
In 1978, consistent with Congress’s
statutory directive, the agencies
promulgated the first CRA regulations,
which included evidence of prohibited
discriminatory or other illegal credit
practices as a performance factor.
27
The
agencies have since significantly
amended these regulations twice, in
1995 and 2005.
28
In addition, the
agencies have periodically published
interpretations of the CRA regulations in
the form of the Interagency Questions
and Answers.
The Federal Reserve has also
developed significant supervisory and
other infrastructure to support the CRA
and its objectives. Starting in 1984, the
Federal Reserve System, through the
community development function at
each Federal Reserve Bank, has engaged
in outreach, educational, and technical
assistance to help banks, community
organizations, government entities, and
the public understand and address
financial services issues affecting LMI
individuals and communities and to
assist banks in meeting their affirmative
obligations under the CRA.
29
The CRA requires each agency to
prepare a written evaluation of a bank’s
record of meeting the credit needs of its
entire community, including LMI
neighborhoods, at the conclusion of its
CRA examination.
30
This report, known
as a performance evaluation, is required
to be a public document that presents an
agency’s conclusions regarding a bank’s
overall performance for each
‘‘assessment factor’’ identified in the
CRA regulations.
31
A performance
evaluation must also present facts and
data supporting the agency’s
conclusions and contain both the bank’s
CRA rating and a description of the
basis for the rating.
32
A bank’s CRA
rating is considered, for example, in
applications to merge with or acquire
another bank, open a branch, or relocate
a main office or branch.
33
A bank with
a CRA rating below ‘‘satisfactory’’ may
be restricted from certain activities until
its next CRA examination.
Request for Feedback:
Question 2. In considering how the
CRA’s history and purpose relate to the
nation’s current challenges, what
modifications and approaches would
strengthen CRA regulatory
implementation in addressing ongoing
systemic inequity in credit access for
minority individuals and communities?
B. Regulation BB and Guidance for
Performance Evaluations
1. CRA Performance Evaluations
Regulation BB provides different
methods to evaluate a bank’s CRA
performance depending on its asset size
and business strategy.
34
Under the
current framework:
Small banks—currently, those with
assets of less than $326 million as of
December 31 of either of the prior two
calendar years—are evaluated under a
retail lending test that may also consider
community development lending.
Community development investments
and services may be considered for an
‘‘outstanding’’ rating at a bank’s option,
but only if the bank meets or exceeds
the lending test criteria in the small
bank performance standards.
Intermediate small banks—
currently, those with assets of at least
$326 million as of December 31 of both
of the prior two calendar years and less
than $1.305 billion as of December 31 of
either of the prior two calendar years—
are evaluated under the retail lending
test for small banks and a community
development test. The intermediate
small bank community development
test evaluates all community
development activities together.
Large banks—currently, those with
assets of more than $1.305 billion as of
December 31 of both of the prior two
calendar years—are evaluated under
separate lending, investment, and
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, small business, and small
farm loans (small banks and
intermediate small banks are not
required to report these data).
Designated wholesale banks (those
engaged in only incidental retail
lending) and limited purpose banks
(those offering a narrow product line to
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12 CFR 228.21(b).
36
12 CFR 228.41.
37
Political subdivisions include cities, counties,
towns, townships, and Indian reservations. Q&A
§ll.41(c)(1)—1.
38
12 CFR 228.12(k).
39
12 U.S.C. 2903(a).
40
12 CFR 228.12(j), (l), (u), and (w).
41
See generally, 12 CFR 228.21–.27; 12 CFR
228.24(d).
42
See generally, 12 CFR 228.21–.27; 12 CFR
228.12(g), (h), (i), and (t).
43
See, e.g., Board of Governors of the Federal
Reserve System, ‘‘Community Reinvestment Act
(CRA), Search: Evaluations and Ratings (Federal
Reserve Supervised Banks),’’ https://
www.federalreserve.gov/apps/CRAPubWeb/CRA/
BankRating.
44
See, e.g., FFIEC, ‘‘Community Reinvestment
Act: CRA Examinations,’’ https://www.ffiec.gov/cra/
examinations.htm.
45
Id.
46
See, e.g., 80 FR 7980 (Feb. 13, 2015).
47
83 FR 45053 (Sept. 5, 2018).
48
For a summary of the Federal Reserve outreach
session feedback see: https://
www.federalreserve.gov/publications/files/
stakeholder-feedback-on-modernizing-the-
community-reinvestment-act-201906.pdf.
a regional or broader market) are
evaluated under a standalone
community development test.
Banks 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 bank’s
primary regulator.
The Board also considers applicable
performance context information to
inform its analysis and conclusions
when conducting CRA examinations.
Performance context comprises a broad
range of economic, demographic, and
institution- and community-specific
information that examiners review to
calibrate a bank’s CRA evaluation to its
local communities, including:
Demographic data on median income
levels, distribution of household income,
nature of housing stock, housing costs, and
other relevant assessment area-related data.
Any information about lending,
investment, and service opportunities in the
bank’s assessment area(s).
The bank’s product offerings and
business strategy.
Institutional capacity and constraints,
including the size and financial condition of
the bank, the economic climate, safety and
soundness limitations, and any other factors
that significantly affect the bank’s ability to
provide lending, investments, or services in
its assessment area(s).
The bank’s past performance and the
performance of similarly situated lenders.
The bank’s public file and any written
comments about the bank’s CRA performance
submitted to the bank or to the Board, and
any other information deemed relevant by
the Board.
35
2. Assessment Areas
Regulation BB requires a bank to
delineate one or more assessment area(s)
in which its record of meeting its CRA
obligations will be evaluated.
36
The
regulation requires a bank to delineate
assessment areas consisting of
metropolitan areas (MSAs or
metropolitan divisions) or political
subdivisions
37
in which its main office,
branches, and deposit-taking automated
teller machines (ATMs) are located, as
well as the surrounding geographies
(i.e., census tracts)
38
where a substantial
portion of its loans are originated or
purchased.
The assessment area definition’s
emphasis on branches reflects the
prevailing business model for financial
service delivery when the CRA was
enacted. 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.’’
39
The statute does not prescribe the
delineation of assessment areas, but
they are an important aspect of the
regulation because they define
‘‘community’’ for purposes of the
evaluation of a bank’s CRA
performance.
3. Eligible Activities
Regulation BB and the Interagency
Questions and Answers provides
detailed information, including
applicable definitions, regarding
activities that are eligible for CRA
consideration in an assessment of a
bank’s CRA performance. Banks that are
subject to a performance test that
includes a review of their retail
activities are assessed in connection
with retail lending activity (as
applicable, home mortgage loans, small
business loans, small farm loans, and
consumer loans
40
) 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 LMI geographies and
individuals).
41
Banks subject to 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 by
definition must have a primary purpose
of community development.
42
4. Guidance for Performance
Evaluations
In addition to information included in
their CRA regulations, the Board and the
other 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,
43
the Interagency Questions
and Answers, interagency CRA
examination procedures,
44
and
interagency instructions for writing
performance evaluations.
45
C. Stakeholder Feedback and Recent
Rulemaking
The financial services industry has
undergone transformative changes since
the CRA statute was introduced,
including the removal of national bank
interstate branching restrictions and the
expanded role of mobile and online
banking. To better understand how
these developments impact both
consumer access to banking products
and services and a bank’s CRA
performance, the agencies have
reviewed feedback from the banking
industry, community groups,
academics, and others stakeholders on
several occasions.
From 2013 to 2016, the agencies
solicited feedback on the CRA as part of
the Economic Growth and Regulatory
Paperwork Reduction Act of 1996
(EGRPRA) review.
46
Commenters raised
issues related to assessment area
definitions; incentives for banks to serve
LMI, unbanked, underbanked, and rural
communities; recordkeeping and
reporting requirements; need for clarity
regarding performance measures and
better examiner training to ensure
consistency in examinations; and
refinement of CRA ratings.
1. OCC CRA Advance Notice of
Proposed Rulemaking and Federal
Reserve Outreach Sessions
On September 5, 2018, the OCC
published an advance notice of
proposed rulemaking to solicit ideas for
a new CRA regulatory framework (OCC
CRA advance notice of proposed
rulemaking).
47
More than 1,500
comment letters were submitted in
response. To augment that input, the
Federal Reserve System held about 30
outreach meetings with representatives
of banks, community organizations, and
the other agencies.
48
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85 FR 1204 (Jan. 9, 2020).
50
85 FR 34734, 34734 and 34737 (June 5, 2020).
51
85 FR 34734 (June 5, 2020).
52
See OCC, News Release 2020–63, ‘‘OCC
Finalizes Rule to Strengthen and Modernize
Community Reinvestment Act Regulations’’ (May
20, 2020), https://www.occ.gov/news-issuances/
news-releases/2020/nr-occ-2020-63.html; see also
85 FR at 34736.
53
85 FR at 34784.
54
The OCC CRA final rule defines small banks as
those with total assets of $600 million or less and
intermediate banks as those with total assets of over
$600 million but less than $2.5 billion.
55
See, e.g., 85 FR at 34780.
56
See, e.g., id.
57
See, e.g., id. at 34764, 34780.
58
12 U.S.C. 2901.
59
Importantly, a redlining violation under ECOA
or the FHA may be based on a number of factors,
including inappropriate delineation of an
assessment area, lending disparities, and branching
patterns or marketing practices that have the effect
of providing unequal access to credit, or unequal
terms of credit, because of the race, color, national
origin, or other prohibited characteristic(s) of the
residents of the area in which the credit seeker
resides or will reside or in which the property will
be located. See FFIEC Interagency Fair Lending
Examination Procedures (Aug. 2009), https://
www.ffiec.gov/PDF/fairlend.pdf.
60
12 CFR 228.41(c).
61
12 CFR 228.41(b).
62
12 U.S.C. 2902(4); 12 CFR 228.41(f).
Although commenters agreed that the
regulations needed to be modernized to
reflect the evolution of the banking
industry, they expressed strong support
for some elements of the current
approach to CRA and noted the
significant volume of loans and
investments directed toward LMI
consumers and communities that it has
generated. There was substantial
support for retaining CRA’s focus on
LMI consumers and communities, and
many commenters urged the agencies to
proceed with caution so as not to
disturb the important collaborative
environment that CRA has fostered
among banks and community
stakeholders in support of community
development.
Although there was general openness
to considering a more quantitative CRA
framework, commenters raised concerns
about a ‘‘single metric’’ approach,
noting that setting a threshold for the
ratio of CRA activity relative to deposits
associated with each performance rating
could incentivize banks to focus on
high-value markets or activities without
assessing their impact.
Many stakeholders suggested that
deposit-taking physical facility-based
(‘‘branch-based’’) assessment areas serve
many banks well, but additional or
different assessment areas may be
appropriate for other banks, such as
internet banks.
2. 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 (FDIC–OCC CRA
notice of proposed rulemaking).
49
In
response, the agencies received over
7,500 comment letters.
50
On May 20, 2020, the OCC issued a
CRA final rule (OCC CRA final rule),
retaining the most fundamental
elements of the proposal but also
making adjustments to reflect
stakeholder input.
51
The agency
deferred establishing metrics-based
thresholds for evaluating banks’ CRA
performance until it is able to assess
additional data,
52
with the final rule
having an October 1, 2020 effective date
and January 1, 2023 and January 1, 2024
compliance dates.
53
Additionally, the
final rule retains the proposal’s
approach of allowing smaller banks
(including renaming and adjusting the
current intermediate small bank
category as ‘‘intermediate banks’’)
54
to
continue to have their CRA performance
evaluated in a manner comparable to
the current CRA framework.
55
The OCC
CRA final rule also provides that
wholesale and limited purpose banks
will be reviewed in a manner similar to
the current approach.
56
The final rule’s
revised qualifying activities criteria are
applicable to all bank types.
57
III. Assessment Areas
In the current regulation, the
definition of assessment areas reflects a
time when banks delivered products
and services almost exclusively through
physical facilities, primarily branches.
Banks now increasingly deliver
financial products and services to
consumers through online or mobile
banking, which results in a broader
geographic reach for some banks,
especially large banks. Although the
CRA statute does not expressly define
‘‘communities’’ or ‘‘local communities,’’
the statute provides the Board with
broad authority to define these terms by
regulation. This authority includes
amending Regulation BB to incorporate,
in the consideration of a bank’s
‘‘community,’’ assessment areas that are
not geographically local to its main
office, branches, or deposit-taking
ATMs, as currently defined.
The Board is considering how best to
define the local communities where
banks’ CRA activities are assessed to
both reflect changes in the banking
industry and to retain CRA’s nexus with
fair lending requirements. This includes
evaluating changes to a bank’s facility-
based assessment areas, as well as
different approaches for defining
assessment areas for certain large banks
based on concentrations of deposits or
lending that are geographically distant
from the banks’ facilities or that are
primarily provided through non-branch
means.
A. Current Approach for Designating
Assessment Areas
Pursuant to the CRA statute, banks
have a continuing and affirmative
obligation to help meet the credit needs
of the local communities in which they
are chartered.
58
In their CRA
regulations, the agencies have
interpreted local communities to
include the areas surrounding a bank’s
main office, branches, and deposit-
taking ATMs. Accordingly, one of
Regulation BB’s core requirements is
that each bank delineate areas
representing the main geographic basis
upon which their CRA performance is
assessed—referred to as assessment
areas—in keeping with this
interpretation of local communities.
As noted previously, the CRA was one
of several groundbreaking pieces of
legislation enacted to address economic
and financial inequity with respect to
LMI individuals and communities and
systemic disinvestment in LMI areas.
Among other things, Regulation BB
requires that assessment areas not
reflect illegal discrimination and not
arbitrarily exclude LMI geographies;
these elements represent links to ECOA
and the FHA, which work congruently
with the CRA to combat redlining.
59
Consequently, it is crucial that banks
appropriately delineate their assessment
areas.
Regulation BB currently defines
assessment areas for banks (other than
wholesale and limited purpose banks)
in connection with a bank’s deposit-
taking physical locations and the
surrounding areas in which it has
originated or purchased a substantial
portion of its loans.
60
Assessment areas
for wholesale and limited purpose
banks consist generally of one or more
MSAs or metropolitan divisions or one
or more contiguous political
subdivisions, such as counties, cities, or
towns in which the bank has its main
office, branches, and deposit-taking
ATMs.
61
Banks whose business models
predominantly focus upon serving the
needs of military personnel or their
dependents who are not located within
a defined geographic area may delineate
their entire deposit customer base as
their assessment area.
62
B. Stakeholder Feedback on Assessment
Areas
Stakeholder input has generally
indicated that branch-based assessment
areas should be retained. Community
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See, Lei Ding, Federal Reserve Bank of
Philadelphia, and Carolina K. Reid, University of
California, Berkeley, ‘‘The Community
Reinvestment Act (CRA) and Bank Branching
Patterns’’ (Sept. 2019), https://
www.philadelphiafed.org/-/media/community-
development/publications/discussion-papers/
discussion-paper_cra-and-bank-branching-
patterns.pdf?la=en.
64
Board of Governors of the Federal Reserve
System, ‘‘Perspectives from Main Street: Bank
Branch Access in Rural Communities’’ (Nov. 2019),
https://www.federalreserve.gov/publications/files/
bank-branch-access-in-rural-communities.pdf.
65
See Ding and Reid, ‘‘The Community
Reinvestment Act (CRA) and Bank Branching
Patterns.’’
66
See OCC, FDIC, Board, Office of Thrift
Supervision, National Credit Union Association,
‘‘Interagency Fair Lending Examination
Procedures’’ (Aug. 2009), www.ffiec.gov/PDF/
fairlend.pdf.
groups and research organizations have
also indicated that, for banks without
branch-centric business models, deposit
or lending data, or both, should be used
to delineate additional assessment areas
for banks with considerable deposits or
lending volumes outside of their
assessment areas. Industry stakeholders
have expressed some reservations about
deposit-based assessment areas, citing
concerns that the associated data
collection and reporting for many large
banks would be costly and burdensome.
Relatedly, community groups and
research organizations have advised
against comprehensive changes to
assessment area delineation without
data-driven analysis regarding their
potential impact. And both industry and
community group stakeholders have
expressed concern that deposit-based
assessment areas could result in
additional assessment areas in wealthier
and metropolitan areas, exacerbating the
CRA hot spot dynamic.
Industry stakeholders have also
expressed concern about being required
to delineate large assessment areas (e.g.,
whole counties) when a bank serves
only a portion of an area and/or when
other banks already serve that area.
These stakeholders have also noted
uncertainty whether their lending in a
geography would constitute a
substantial portion and, as a result,
would trigger an expectation to include
that geography as part of their
assessment area.
Some industry stakeholders have also
noted that internet banks lacking a
physical presence in any market should
have nationwide assessment areas. For
example, some stakeholders have
suggested that internet banks could be
defined as those deriving no more than
20 percent of their deposits from
branch-based assessment areas.
C. Facility-Based Assessment Area
Delineation Options
To continue encouraging banks to
meet the credit and community
development needs of their local
communities, the Board proposes
continuing to delineate assessment areas
where banks have a physical presence
and seeks feedback on options to better
tailor assessment areas around branches,
loan production offices, and deposit-
taking ATMs based on bank size,
business model, and capacity.
1. Branch-Based Assessment Areas
Branches have traditionally been the
primary means through which banks
connect with and serve their
communities. In addition to providing a
channel for delivering banking products
and services, branches are frequently
the places where individuals develop
personal banking relationships and
obtain financial education. Branches are
particularly important in this regard to
LMI consumers and small business
owners.
63
Because of these ancillary
activities, branches are also essential to
low-income communities, including
many rural communities
64
and low-
income metropolitan neighborhoods
where there is often a shortage of bank
branches.
65
Branch-based assessment areas can
raise fair lending risk and uncertainty
when they are not composed of whole
political subdivisions, e.g., whole
counties. For assessment areas
composed of portions of political
subdivisions, examiners conduct a more
rigorous review that includes a bank’s
geographic lending patterns to ensure
that LMI census tracts are not arbitrarily
excluded. Consistent with the
longstanding public policy to prevent
redlining, examiners also validate that
an assessment area does not reflect
illegal discrimination. An assessment
area that appears to have been drawn to
exclude areas with a majority number of
minority residents represents a higher
risk of discriminatory redlining, as set
forth in the FFIEC Interagency Fair
Lending Examination Procedures.
66
If
LMI census tracts are found to be
arbitrarily excluded or an assessment
area reflects illegal discrimination,
examiners work with a bank to delineate
an assessment area that complies with
the regulatory criteria, which in some
cases could include the entire political
subdivision. The revised assessment
area is then used for the CRA
evaluation. However, redrawing a
bank’s assessment area during a CRA
evaluation can result in uncertainty and
possibly a lower rating, since the bank
may not have engaged in CRA activities
inside the portions of the political
subdivision that were previously
excluded.
The Board is proposing to tailor the
facility-based assessment area definition
based on bank size. To address the
uncertainty commenters noted when
banks take assessment areas composed
of partial political subdivisions, this
approach would require facility-based
assessment areas for large banks to
consist of whole counties. Excluding
partial county assessment areas for large
banks would streamline the assessment
area review process, add additional
predictability and consistency to CRA
examinations, and may provide
incentives for large banks to lend in a
broader area.
In contrast, for small banks, the Board
believes that defining assessment areas
based on whole counties may not be
appropriate. Smaller banks may not
have the capacity and resources to serve
the needs of a geographically large
county, especially when a bank is
situated near a county border, is
otherwise geographically remote from
an area where it may have some lending
activity but no branches, or faces
substantial competition from other
financial institutions within the same
geographies. Some small municipalities
and community groups have also
indicated that overly large assessment
areas can mask poor performance in
remote and underserved LMI areas.
Therefore, small banks would continue
to be allowed to define facility-based
assessment areas that include partial
counties or portions of smaller political
subdivisions, including portions of
cities or townships, as long as they are
composed of at least whole census
tracts.
The Board proposes to provide greater
clarity that a small bank would not be
required to expand the delineation of an
assessment area to include parts of
counties where it does not have a
physical presence and where it either
engages in a de minimis amount of
lending or there is substantial
competition from other institutions,
except in limited circumstances.
Pursuant to this, it would clarify the
limited circumstances under which a
small bank would be asked to broaden
the delineation of its assessment area
beyond where it has branches, such as
where an assessment area is drawn in a
discriminatory manner or arbitrarily
excludes LMI areas.
Under this tailored approach, both
large and small banks would still be
required to delineate assessment areas
to include the geographies in which a
bank has its main office and its
branches, as well as the surrounding
geographies in which the bank has
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A deposit-based approach was proposed in the
FDIC–OCC CRA notice of proposed rulemaking and
adopted in the OCC CRA final rule. The OCC CRA
final rule provides, in relevant part, that if a
majority of a bank’s deposits come from depositors
located outside of its branch-based assessment
area(s) additional assessment areas would be
delineated in areas where a certain percentage of
deposits are located.
68
The data used in the various analyses to
support the Board’s ANPR reflect information that
was available at the time that the analyses were
conducted.
originated or purchased a substantial
portion of its loans, and may not extend
substantially beyond an MSA boundary
or beyond a state boundary unless the
assessment area is located in a
multistate MSA. The Board proposes a
technical update to Regulation BB to
also include a combined statistical area,
in addition to MSAs, as a limitation to
branch-based assessment areas.
Similarly, the regulatory requirements
that assessment area delineations may
not reflect illegal discrimination and
may not arbitrarily exclude LMI
geographies would continue to apply.
2. Loan Production Office-Based and
Deposit-Taking ATM-Based Assessment
Areas
The Board is considering whether
assessment areas should be expanded to
include loan production offices (LPOs).
Certain banks source loans and other
services through LPOs, which are non-
depository lending facilities that extend
retail lending products to the public and
are frequently located outside of branch-
based assessment areas. CRA
performance associated with these
facilities could be evaluated based on
bank business models, capacities, and
constraints, as well as community
needs. For example, if a bank extends
only small business or consumer loans
from its LPOs and those products
constitute a major product line as
discussed in Section VI, only those
types of loans would be subject to
evaluation. Similarly, community
development expectations could also be
based on the bank’s capacity to engage
in community development financing
and community development services.
This approach could provide banks with
CRA consideration for, and thereby
incentivize, retail lending and
community development activity
potentially without some of the
complexity associated with deposit- or
lending-based assessment areas
discussed below.
Additionally, the Board is proposing
to give banks the option of delineating
facility-based assessment areas around
deposit-taking ATMs, but they would
not be required to do so. Some
stakeholders have expressed the view
that the current requirement for banks to
delineate an assessment area around a
deposit-taking ATM is outdated now
that customers can use smartphones and
other technologies to make deposits.
However, if deposits from deposit-
taking ATMs generate considerable bank
deposits or comprise a comparatively
large market share within a community,
it may still be appropriate to delineate
assessment areas around them.
Request for Feedback:
Question 3. Given the CRA’s purpose
and its nexus with fair lending laws,
what changes to Regulation BB would
reaffirm the practice of ensuring that
assessment areas do not reflect illegal
discrimination and do not arbitrarily
exclude LMI census tracts?
Question 4. How should the Board
provide more clarity that a small bank
would not be required to expand the
delineation of assessment area(s) in
parts of counties where it does not have
a physical presence and where it either
engages in a de minimis amount of
lending or there is substantial
competition from other institutions,
except in limited circumstances?
Question 5. Should facility-based
assessment area delineation
requirements be tailored based on bank
size, with large banks being required to
delineate facility-based assessment areas
as, at least, one or more contiguous
counties and smaller banks being able to
delineate smaller political subdivisions,
such as portions of cities or townships,
as long as they consist of whole census
tracts?
Question 6. Would delineating
facility-based assessment areas that
surround LPOs support the policy
objective of assessing CRA performance
where banks conduct their banking
business?
Question 7. Should banks have the
option of delineating assessment areas
around deposit-taking ATMs or should
this remain a requirement?
D. Deposit-Based or Lending-Based
Assessment Areas for Certain Large
Banks
For certain large banks that engage in
considerable business beyond their
branch-based assessment areas, the
Board is exploring alternative deposit-
based and lending-based ways to
delineate additional assessment areas.
In considering options for creating new
assessment areas that are not facility-
based, the Board is also considering the
types of banks to which these additional
assessment area requirements should
apply. The Board would be inclined to
require such an approach only for
internet banks that do not have physical
locations and banks that partner with
online lenders that do not have physical
loan-making locations. The Board is also
considering which approaches should
apply to hybrid banks that have
traditional branch-based assessment
areas but also conduct a substantial
majority of lending and deposit-taking
beyond their assessment areas. For these
banks, the Board is considering whether
there is a certain threshold of outside
activity that would prompt new
assessment areas.
1. Deposit-Based Assessment Areas
The Board is considering the option of
establishing deposit-based assessment
areas for large banks that provide all or
a substantial majority of their products
and services entirely via mobile and
internet channels. There are currently
deposits data gaps that make it difficult
to understand how this option would
affect banks with different business
models and asset sizes and which
communities it would impact.
Additionally, deposit-based assessment
areas also raise considerations of how
much burden would be associated with
deposits data collection, as discussed in
Section XI. Subject to the deposits data
limitations discussed above, one option
for deposit-based assessment areas
would be to trigger the delineation of
additional assessment areas when a
large bank exceeds a certain threshold of
deposits outside of its facility-based
assessment areas.
67
However, based on
stakeholder feedback that deposit-based
assessment areas could exacerbate CRA
hot spots and deserts, it would be
important to evaluate the impact of this
approach on LMI and other underserved
communities.
2. Lending-Based Assessment Areas
Given some of the data challenges
with adding deposit-based assessment
areas, an alternative approach could be
to base additional assessment areas for
large banks on concentrations of lending
activity. One advantage of lending-based
assessment areas is that it is possible to
analyze their impact given the
availability of HMDA and CRA reporter
data, reflecting home mortgage, small
business, and small farm lending
activity. The Board conducted two
separate analyses of possible approaches
to delineating additional assessment
areas based on concentrations of lending
activity outside of branches.
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The first
used a business model approach based
on banks having a substantial majority
of lending outside of their branch-based
assessment areas plus a concentration of
lending at the county level. The second
utilized the concentration of lending
outside of banks’ branch-based
assessment areas.
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The Board defined a minimum concentration of
lending at the county level needed to delineate a
new assessment area in the following way. First, the
Board identified banks making 75 percent or more
of their retail loans outside of their assessment areas
in 2017, by product line. Next, the Board sought to
delineate new assessment areas for these banks
such that a substantial share of the lending
currently outside of branch-based assessment areas
would be newly included in lending-based
assessment areas. To do so, by product line, the
Board calculated a minimum concentration of loans
at the county level that would capture
approximately 50 percent of the loans outside of
branch-based assessment areas that are not
currently assessed for CRA within this group of
banks. For home mortgage lending, this minimum
concentration is 88 loans. Note that this calculation
is based on lending of the group of banks making
75 percent or more of their loans outside of branch-
based assessment areas and not all lending outside
of branch-based assessment areas.
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In this analysis, a proxy measure was used to
determine banks’ assessment areas using bank
branch location data from the FDIC SOD. If a bank
had a branch in a county in 2017, then that county
was counted as part of the bank’s assessment
area(s).
a. Lending-Based Approach for Large
Banks With a Substantial Majority of
Lending Outside of Branches
The Board analyzed how lending-
based assessment areas might work for
large banks that conduct a substantial
majority (75 percent or greater) of their
lending outside of their facility-based
assessment areas. Such an approach
would be intended to capture a subset
of bank business models, including
banks that do not rely principally on
branches for extending loans.
The Board’s analysis reviewed 2017
HMDA, small business, and small farm
data from CRA-reporting banks. The
analysis indicated that this approach for
delineating lending-based assessment
areas may not meet the Board’s policy
objectives for defining additional
assessment areas. The analysis revealed
that additional assessment areas would
be required for only 33 banks across all
three lending categories.
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The small
number of affected banks reflects two
key findings of the analysis: (i) The vast
majority of banks make less than a
substantial majority of retail loans
outside of their assessment areas, and
(ii) for the banks that make more than
a substantial majority of retail loans
outside of their assessment areas, their
lending is relatively dispersed rather
than concentrated in particular
geographic areas. Additionally, as with
deposit-based assessment areas, this
approach may exacerbate the
discrepancies in CRA activity between
CRA hot spots and deserts, because the
new assessment areas identified under
this approach tended to be located in
high-density metropolitan areas with
multiple active banks. Finally, the
analysis indicates that this approach
may not substantially increase banks’
lending to LMI borrowers in the new
assessment areas because the percentage
of LMI borrowers is similar between
banks that would add new lending-
based assessment areas and banks that
already have existing facility-based
assessment areas.
b. Lending-Based Approach for Large
Banks With a Concentration of Lending
Outside of Their Assessment Areas
The second lending-based approach
analyzed by the Board would require a
bank to delineate additional assessment
areas in counties with sufficient
concentrations of lending, regardless of
how many loans it makes outside of its
branch-based assessment areas. Using
2017 data, the Board examined all banks
that are both HMDA reporters and
included in FDIC Summary of Deposits
(SOD) data.
70
The analysis examined
HMDA mortgage lending only and used
two illustrative thresholds of 100 and
250 home mortgage loans, respectively,
within a county as a trigger to delineate
additional assessment areas. This
analysis revealed that of 3,160 banks
analyzed, only 167 banks would be
required to delineate at least one
additional assessment area using a
threshold of 100 mortgages loans and
only 65 banks would be required to
delineate at least one additional
assessment area using a threshold of 250
mortgage loans. It is important to
recognize that these numbers could
increase over time as banks expand their
reliance on mobile and online
platforms.
Request for Feedback:
Question 8. Should delineation of
new deposit- or lending-based
assessment areas apply only to internet
banks that do not have physical
locations or should it also apply more
broadly to other large banks with
substantial activity beyond their branch-
based assessment areas? Is there a
certain threshold of such activity that
should trigger additional assessment
areas?
E. Nationwide Assessment Areas for
internet Banks
The Board is considering whether to
allow internet banks to delineate
nationwide assessment areas. Currently,
these banks’ assessment areas are based
on the location of the bank’s solitary
main office. This results in assessment
areas that are much smaller than the
bank’s actual business footprint.
Additionally, the number of new
assessment areas triggered for internet
banks using the deposit-based or
lending-based assessment area approach
would vary and, for some of these
banks, could be limited. The Board’s
above-referenced lending-based
assessment area analysis indicated that
many banks’ dispersion of lending
activity would make it challenging to
delineate additional assessment areas in
specific counties. In contrast,
nationwide assessment areas would be
based holistically on an internet bank’s
overall business activity.
The designation of a nationwide
assessment area would require
determining how to conduct
performance evaluations for this
approach, including for retail and
community development activities.
Such an approach would also require
defining an internet bank for CRA
purposes. In the extreme, the definition
of internet bank could be limited to
banks that exclusively use an online
business model to deliver products and
services. A hybrid definition might
instead allow limited branch-related
activity in combination with a
substantial majority of activity
conducted through online channels.
Request for Feedback:
Question 9. Should nationwide
assessment areas apply only to internet
banks? If so, should internet banks be
defined as banks deriving no more than
20 percent of their deposits from
branch-based assessment areas or by
using some other threshold? Should
wholesale and limited purpose banks,
and industrial loan companies, also
have the option to be evaluated under
a nationwide assessment area approach?
Question 10. How should retail
lending and community development
activities in potential nationwide
assessment areas be considered when
evaluating an internet bank’s overall
CRA performance?
IV. Tailoring Evaluations Based on
Bank Size and Business Model
The Board is proposing a revised CRA
evaluation framework that would
consist of two separate tests: A Retail
Test and a Community Development
Test. Within these tests would be the
following four subtests: Retail Lending
Subtest, Retail Services Subtest,
Community Development Financing
Subtest, and Community Development
Services Subtest. Retail and community
development activities are both
fundamental to CRA and essential for
meeting the core purpose of the statute.
Separately evaluating these activities in
a Retail Test and a Community
Development Test helps ensure that
these activities are appropriately taken
into consideration. Having a separate
Retail Test and Community
Development Test also provides the
ability to tailor which tests and subtests
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apply to banks based on asset size and
other factors. Finally, separate tests
facilitate using metrics and benchmarks
that are customized to different
activities, which allows the use of
available data to the greatest extent
possible and thereby minimizes burden.
Treatment of Small and Large Retail
Banks. The Board proposes giving small
retail banks the option to be evaluated
solely under the Retail Lending Subtest,
while applying all four subtests to larger
retail banks. A bank would receive a
conclusion for each applicable subtest
in each of its assessment areas.
Accordingly, a small bank that chooses
to opt in would receive a Retail Lending
Subtest conclusion in each assessment
area, and a large bank would receive
four subtest conclusions in each
assessment area. These subtest
conclusions in assessment areas would
form the foundation for state, multistate
MSA, and institution CRA ratings.
Defining Small and Large Banks for
CRA Purposes. The approach described
above would establish small bank and
large bank categories of retail banks
based on institution asset size, and
would eliminate the current
intermediate small bank category to
reduce complexity and create more
consistent evaluation standards.
Currently, the asset threshold between
small and intermediate small banks is
$326 million, and the threshold between
intermediate small and large banks is
$1.305 billion. The Board is seeking
feedback on whether to set the asset
threshold differentiating between small
and large banks at either $750 million
or $1 billion, designating banks below
this level as small banks and banks
above this level as large banks.
Under the proposed test structure,
increasing a small bank threshold above
the existing $326 million limit would
reduce the scope of activities evaluated
under CRA for some banks compared to
the approach used today. Currently,
small banks with assets below $326
million are evaluated on retail lending
performance alone, while intermediate
small banks with assets between $326
million and $1.305 billion are also
evaluated on their community
development activities. Although
increasing the small bank threshold
above the existing limit might result in
fewer banks’ community development
activities evaluated for purposes of
CRA, it would also better tailor the
compliance and data implications of the
proposed Community Development Test
only to banks with substantial
community development activity.
Small Bank Considerations. The
Board proposes that small retail banks
under the Board’s proposed threshold
would, by default, have their retail
lending activities evaluated under the
qualitative approach used in the current
examination procedures for small banks,
rather than the metrics-based approach
proposed in Section V. Small banks
would also have the ability to opt in to
the metrics-based approach at their
choosing. The default approach of
evaluation under the current qualitative
framework would allow for continuity
of examination procedures and would
more fully account for qualitative
performance context factors that may be
especially relevant for smaller banks,
such as capacity constraints. However,
the default option would not deliver the
consistency and predictability of the
evaluation process desired by many
banks and other stakeholders and would
increase overall complexity because it
requires multiple performance
evaluation frameworks.
Another consideration is allowing
small banks to have the option of
requesting that retail services,
community development activities, or
both, be considered in addition to the
Retail Lending Subtest conclusions
when developing CRA ratings. Small
banks could opt to have these activities
evaluated on a qualitative basis to
improve their overall ratings and would
not be required to collect the data
necessary to be evaluated under the
Retail Services Subtest and the
Community Development Test. The
Board believes that a small retail bank
should also continue to be able to
achieve any rating, including an
‘‘outstanding,’’ based on its retail
lending performance alone, and should
not be required to be evaluated on other
activities. Section X discusses ratings
for small banks in greater detail.
Wholesale and Limited Purpose
Banks. The Board has also considered
how to tailor evaluation standards to
wholesale and limited purpose banks.
Because these banks, by definition, do
not conduct retail lending as a
significant part of their business, the
Board proposes evaluating these banks
using only the Community Development
Test. The Board anticipates that the
evaluation approach used for the
Community Development Test,
however, would be applied differently
to wholesale and limited purpose banks
than retail banks. Specifically, although
the Board is proposing a community
development financing metric that
incorporates deposits as a measure of a
large retail bank’s capacity within an
assessment area, the Board is
considering alternate measures of
capacity for wholesale and limited
purpose banks, such as total assets. In
addition, as with any bank, wholesale
and limited purpose banks would
continue to have the option to be
evaluated under an approved strategic
plan, which allows for tailoring to their
unique business models and strategies.
Request for Feedback:
Question 11. Is it preferable to make
the default approach for small banks the
current framework, with the ability to
opt in to the metrics-based approach, as
proposed, or instead the metrics-based
approach, with the ability to opt out and
remain in the current framework?
Question 12. Should small retail
banks that opt in to the proposed
framework be evaluated under only the
Retail Lending Subtest? Should large
retail banks be evaluated under all four
subtests: Retail Lending Subtest, Retail
Services Subtest, Community
Development Financing Subtest, and
Community Development Services
Subtest?
Question 13. Is $750 million or $1
billion an appropriate asset threshold to
distinguish between small and large
retail banks? Or should this threshold be
lower so that it is closer to the current
small bank threshold of $326 million?
Should the regulation contain an
automatic mechanism for allowing that
threshold to adjust with aggregate
national inflation over time?
V. Retail Test: Evaluation of Retail
Lending and Retail Services
Performance
The Board proposes using a Retail
Lending Subtest—utilizing a metrics-
based approach—to evaluate retail
lending performance for all large retail
banks and small retail banks that opt
into the new framework. This approach
would result in a small retail bank
receiving a Retail Lending Subtest
conclusion in each of its assessment
areas. The Board also seeks feedback on
a Retail Services Subtest, which would
apply only to large banks above a
specified asset threshold. A large bank
would receive separate Retail Lending
Subtest and Retail Services Subtest
conclusions in each of its assessment
areas.
A. Retail Lending Subtest Evaluation
Approach
This section proposes a metrics-based
approach to a Retail Lending Subtest
that leverages practices currently used
in CRA examinations combined with
more transparent performance
expectations. At the heart of this
analysis would be evaluating how well
a bank serves LMI census tracts, LMI
borrowers, small businesses, and small
farms. This approach is intended to
strengthen CRA’s focus on how banks
serve the retail credit needs of LMI
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See 12 CFR 228.22(b).
communities, and to improve the clarity
and consistency of CRA examinations.
First, the Board proposes using a
retail lending screen that would
determine whether a bank should be
eligible for a metrics-based evaluation of
retail lending that could result in a
presumption of ‘‘satisfactory,’’ or that
should instead be evaluated subject to
examiner discretion as a result of having
relatively low levels of retail lending in
an assessment area.
Second, for banks that pass the simple
screen, the Board proposes using retail
lending distribution metrics to
determine whether a bank is eligible for
a presumption of ‘‘satisfactory’’ on the
Retail Lending Subtest in a specific
assessment area. The retail lending
distribution metrics comprises two
metrics: (a) A geographic distribution
metric that would evaluate how well a
bank is serving LMI census tracts; and
(b) a borrower distribution metric that
would evaluate how well a bank is
serving LMI borrowers, small
businesses, and small farms in their
assessment area overall, regardless of
geography. To determine which banks
are eligible for a presumption of
‘‘satisfactory,’’ this approach would use
tailored, dynamic thresholds that adjust
across different communities and that
reflect changes in the local business
cycle. The Board believes that providing
a dashboard—using data through the
previous quarter or year, depending on
the data source—to show the thresholds
for specific assessment areas would
facilitate ease of use and enable banks
to track their performance over the
course of an evaluation period.
To complement the presumption of
‘‘satisfactory’’ approach, the Board is
also considering a third step using the
same distribution metrics relative to
performance ranges set for each Retail
Lending Subtest conclusion:
‘‘outstanding,’’ ‘‘satisfactory,’’ ‘‘needs to
improve,’’ and ‘‘substantial
noncompliance.’’ This would produce a
recommended Retail Lending Subtest
conclusion that an examiner would
consider in addition to certain, targeted
performance context and qualitative
information to reach a final Retail
Lending Subtest conclusion.
1. Current Structure for Evaluating
Retail Lending Activity
In current CRA examinations, retail
lending performance is examined under
a lending test that differs based on a
bank’s asset size category (small,
intermediate small, and large). The
lending test includes quantitative and
qualitative criteria, and does not specify
what level of lending is needed to
achieve ‘‘satisfactory’’ or ‘‘outstanding’’
performance.
Currently, the purpose of evaluating
lending activity for both small and large
banks is the same—to determine
whether a bank has a sufficient
aggregate value of lending in its
assessment area(s) in light of a bank’s
performance context, including its
capacity and the lending opportunities
available in its assessment area(s). For
small banks, examiners make a loan-to-
deposit calculation based on the balance
sheet dollar values at the institution
level, and review the number of loans
made inside and outside of assessment
area(s). For large banks, examiners
consider the number and dollar amount
of loans in assessment area(s) and the
number of loans inside and outside of
assessment area(s). These approaches
rely on examiner judgment to draw a
conclusion about a bank’s level of
lending.
Pursuant to Regulation BB, CRA
examinations today also include an
evaluation of the geographic
distribution and borrower distribution
of a bank’s retail lending.
71
This
evaluation leverages a set of local data
points referred to as comparators—both
demographic comparators and aggregate
comparators—that are tailored to each
assessment area in which the bank
operates.
For the geographic distribution
analysis, examiners evaluate the
distribution of a bank’s retail loans in
low-income, moderate-income, middle-
income, and upper-income census
tracts. Examiners review the geographic
distribution of home mortgage loans by
income category and compare the
percentage distribution of lending to the
percentage of owner-occupied housing
units in the census tracts. Similarly, in
each income category of census tract,
examiners compare small business
lending to the percentage distribution of
small businesses; small farm lending to
the percentage distribution of small
farms; and consumer lending to the
percentage distribution of households in
each category of census tract, as
applicable.
For the borrower distribution
analysis, examiners evaluate the
distribution of a bank’s retail loans
based on specified borrower
characteristics, such as the income level
of borrowers for home mortgage lending.
The comparators used to inform the
borrower distribution analysis are
families by income level for home
mortgage lending; businesses with gross
annual revenues of $1 million or less for
small business lending; farms with gross
annual revenues of $1 million or less for
small farm lending; and households by
income level for consumer lending.
Examiners complement these
distribution analyses by also reviewing
the dispersion of a bank’s loans
throughout census tracts of different
income levels in its assessment area(s)
to determine if there are conspicuous
lending gaps.
2. Stakeholder Feedback on Evaluating
Retail Lending
Although many stakeholders
expressed support for the consideration
of performance context and the
qualitative aspects of CRA performance,
they raised concerns about a lack of
transparency and predictability
regarding the amount and nature of
retail lending activity required to
achieve a particular rating. As explained
above, Regulation BB and the related
examination procedures require
evaluations based on the number and
dollar amount of loans, but without a
formalized way of translating that
analysis into performance expectations.
Stakeholders have also expressed the
need for greater consistency across CRA
performance standards. CRA
evaluations are tailored based on bank
size and business strategy; however,
these differences can be confusing as
banks cross asset thresholds and are
subject to different examination
procedures. For example, as noted,
overall lending activity is evaluated
using a loan-to-deposit ratio criterion for
small banks and by reviewing the
number and amount of loans in a bank’s
assessment area(s) for large banks.
3. Potential Retail Lending Screen
As a first step to evaluating a bank’s
retail lending, the Board proposes using
a retail lending screen. The screen
would measure a bank’s retail lending
relative to its capacity to lend in an
assessment area to determine whether
the bank is eligible for a presumption of
‘‘satisfactory’’ using the retail lending
distribution metrics, or whether it
should instead be more closely
evaluated by an examiner.
Using the retail lending screen would
ensure that a bank does not receive a
presumption of ‘‘satisfactory’’ in
assessment areas where it has overall
low levels of retail lending relative to
deposits, compared to other banks in the
assessment area. Without such a screen,
a bank with high levels of deposits that
originated a very low number of retail
loans during an evaluation period might
otherwise appear to merit a
‘‘satisfactory’’ conclusion simply
because, for example, those loans
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The analysis of performance evaluation data,
using the Board’s publicly available CRA Analytics
Data Tables, showed that the frequency of ratings
below ‘‘satisfactory’’ increased substantially relative
to ‘‘high satisfactory’’ or ‘‘outstanding’’ ratings
when a bank’s average annual loan-to-deposit ratio
fell below 30 percent of the market benchmark. In
2017, the median market benchmark loan-to-deposit
ratio for entire MSAs and for non-MSA counties
were both approximately 9 percent. The proposed
loan-to-deposit ratio is based on the dollar amount
of a bank’s originations and purchases during the
evaluation period. In contrast, the loan-to-deposit
ratio used under current small bank examination
procedures is based on the dollar amount of loans
and purchases on a bank’s balance sheet.
happened to be concentrated among
LMI borrowers and LMI census tracts.
In each assessment area, the retail
lending screen would measure the
average annual dollar amount of a
bank’s originations and purchases of
retail loans in the numerator—including
home mortgage, small business, and
small farm loans—relative to its
deposits in the denominator. Both the
numerator and denominator of the retail
lending screen would be measured in
dollars.
The retail lending screen would be
measured against a market benchmark
that reflects the level of retail lending by
other banks in the same assessment
area, indicating the aggregate dollar
amount of lending a typical bank might
be expected to engage in given its level
of retail deposits. Specifically, the
proposed market benchmark for the
retail lending screen would be the
percentage of retail lending (in dollars)
by all HMDA and CRA reporter banks in
an assessment area compared to the
aggregate amount of deposits for those
banks in that same assessment area. The
use of HMDA and CRA reporter data
would minimize the data reporting
requirements for small banks. To ensure
that banks’ ability to pass this retail
lending screen would not depend on
their business strategy (e.g., banks that
hold their loans in portfolio rather than
sell them into the secondary market),
the threshold for this screen would be
set at a low level, such as 30 percent of
the market benchmark.
72
The intent
would be to focus examiner attention on
banks that are significantly
underperforming relative to the market
benchmark.
Under this approach, banks not
meeting the retail lending screen
threshold would not be eligible for a
metrics-based presumption of
‘‘satisfactory’’ on the Retail Lending
Subtest in an assessment area. Instead,
examiners would review the bank’s
aggregate lending, geographic
distribution, and borrower distribution
in combination with performance
context and qualitative aspects of
performance.
Request for Feedback:
Question 14. Is the retail lending
screen an appropriate metric for
assessing the level of a bank’s lending?
4. Retail Lending Distribution Metrics
for a Presumption of ‘‘Satisfactory’’
For banks that pass the retail lending
screen, the Board proposes comparing a
pair of retail lending distribution
metrics against local quantitative
thresholds to determine whether a bank
is eligible for a presumption of
‘‘satisfactory’’ on the Retail Lending
Subtest in an assessment area. For each
product line evaluated under the Retail
Lending Subtest, the Board proposes
evaluating bank activity using both a
geographic distribution metric and a
borrower distribution metric, with each
designed to evaluate different but
complementary aspects of a bank’s retail
lending performance, similar to the
focus of current examinations.
If a bank’s geographic distribution
metric and borrower distribution metric
both met or exceeded the relevant
thresholds, then a bank would receive a
presumption of ‘‘satisfactory’’
performance and would be eligible for a
‘‘satisfactory’’ or an ‘‘outstanding’’
conclusion in a specific assessment
area.
a. Calculation of Retail Lending
Distribution Metrics
The geographic distribution metric
would measure the number of a bank’s
loans in LMI census tracts within an
assessment area. For each of the bank’s
major product lines, the geographic
distribution metric would calculate the
total number of the bank’s originated or
purchased loans in LMI census tracts
(numerator) relative to the total number
of the bank’s originated or purchased
loans in the assessment area overall
(denominator). For mortgage and
consumer loans, this would include
loans to borrowers of any income level
but located within an LMI census tract.
For instance, assuming that a bank
originated or purchased 25 home
mortgage loans in one of its assessment
areas during the evaluation period and
that five of these were located in LMI
census tracts, the geographic
distribution metric for home mortgage
loans would be:
The borrower distribution metric
would measure a bank’s loans to LMI
individuals (for home mortgages or
consumer loans, respectively) or to
small businesses (for small business
loans) or small farms (for small farm
loans) within an assessment area
relative to the total number of the bank’s
corresponding loans in that category in
the assessment area overall. For each of
the bank’s major product lines, the
borrower distribution metric would be
calculated separately. Options for
revising the thresholds for small
business lending and small farm lending
are discussed in Section VI.
Assuming that a bank originated or
purchased 100 home mortgage loans in
one of its assessment areas during the
evaluation period, and that 20 of these
went to LMI borrowers, the borrower
distribution metric would be:
To calculate the retail lending
distribution metrics, the Board’s
proposed approach would use the
number of a bank’s loans, not the dollar
amount of those loans, in order to treat
different-sized loans equally within
product categories. For example, using
an approach based on the number of
loans, a $250,000 mortgage to a
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Complicating this decision further is that, for
loans originated in 2018, HMDA reporting
requirements for home mortgage loans changed and
now include, for certain reporters, home equity
lines of credit (HELOCs) that are secured by a
dwelling, regardless of loan purpose (unless
otherwise exempt). See, e.g., 12 CFR 1003.2(e); 82
FR 43088 (Sept. 13, 2017); 85 FR 28364 (May 12,
2020). As such, HELOCs reported in HMDA data
may include loans secured by a dwelling but not
connected to a dwelling-related purpose (i.e., home
purchase, home refinance, or home improvement).
moderate-income household would
count the same as an $80,000 mortgage
to a low-income household. This
approach emphasizes the number of
households, small businesses, and small
farms served, and avoids weighting
larger loans more heavily than smaller
loans, as would occur when using dollar
amounts. This better captures the
importance and responsiveness of
smaller dollar loans to the needs of
lower-income borrowers and smaller
businesses and farms, and does not
provide an incentive to make larger
loans to reach performance levels.
For each product line evaluated using
the retail lending distribution metrics,
the Board proposes aggregating the
calculation of the retail lending
distribution metrics in certain aspects
for simplicity and clarity. This would be
a change from current practice, whereby
examiners separately evaluate a bank’s
performance in each income category
(low-, moderate-, middle-, and upper-);
each loan category within a product line
(e.g., home purchase loans, home
refinance loans); and each year. The
proposed approach would combine low-
and moderate-income categories under a
single metric calculation. The proposed
approach would also aggregate all
categories of home mortgage loans
together when evaluating home
mortgage lending, all categories of small
business loans together when evaluating
small business lending, and all types of
small farm loans together when
evaluating small farm lending. By
comparison, the Board believes that
there could be different considerations
for evaluating consumer loan categories
separately (e.g., motor vehicle lending
separately from credit card lending)
rather than as one consumer product
line. Lastly, the Board proposes to
combine all years of the evaluation
period together under a single metric
calculation.
Calculating the retail lending
distribution metrics on a more
aggregated basis for each product line
would simplify the number of
calculations needed to determine
whether a bank qualified for the
presumption of ‘‘satisfactory.’’ This
approach would result in only one
calculation needed for each distribution
metric for each product line during an
evaluation period. Another benefit of
aggregating the metrics in this manner is
that, for small banks and rural banks
with relatively fewer retail loan
originations, this approach would more
likely capture a sufficient number of
loans for use in the metrics.
The greater simplicity would also
have some drawbacks. Combining low-
and moderate-income categories
together could potentially reduce the
focus on lending in low-income census
tracts and to low-income borrowers
relative to lending to moderate-income
tracts and moderate-income borrowers.
A potential drawback to combining all
home mortgage lending products into
one category is that the evaluation of
home purchase lending could be
obscured when combined with home
refinance loans, particularly when
levels of home mortgage refinancing
increase.
73
b. Benchmarks for the Retail Lending
Distribution Metrics
The Board proposes using two
different kinds of benchmarks for each
distribution metric as the building
blocks for setting quantitative
thresholds for the retail lending
distribution metrics. First, a community
benchmark would reflect the
demographics of an assessment area,
such as the number of owner-occupied
units, the percentage of low-income
families, or the percentage of small
businesses or small farms. Second, a
market benchmark would reflect the
aggregate lending to targeted areas or
targeted borrowers by all lenders
operating in the same assessment area.
Using these two kinds of benchmarks
will help tailor the Retail Lending
Subtest to the lending opportunities,
needs, and overall lending taking place
in an assessment area. Importantly, the
Board believes that these benchmarks
will focus CRA evaluations on the local
communities being served by banks and
will incorporate aspects of performance
context directly into the metrics.
Benchmarks grounded in local data
are used today in CRA examinations,
and the Board’s approach seeks to
translate these comparators into
performance expectations in a
consistent and transparent way. As
discussed above, in current CRA
performance evaluations, the
benchmarks are referred to as
‘‘comparators.’’ The community
benchmark is currently referred to as the
demographic comparator. The market
benchmark is currently referred to as the
aggregate comparator.
Within each retail lending product
line evaluated under the Retail Lending
Subtest, the geographic distribution
metric would be compared to a
community benchmark and a market
benchmark, and the borrower
distribution metric would be compared
to a community benchmark and a
market benchmark. Table 1 provides an
overview of the benchmarks under
consideration by the Board and their
respective data sources.
T
ABLE
1—L
IST OF
B
ENCHMARKS FOR
R
ETAIL
L
ENDING
D
ISTRIBUTION
M
ETRICS AND
D
ATA
S
OURCES
Distribution metric Community benchmark Market benchmark
Mortgage
Geographic:
Data Point ..................... Percentage of owner-occupied residential units in LMI
census tracts in assessment area. Percentage of home mortgages in LMI census tracts by
all lender-reporters in assessment area.
Data Source .................. American Community Survey (Census) .......................... HMDA Data.
Borrower:
Data Point ..................... Percentage of LMI families in assessment area ............ Percentage of home mortgages to LMI borrowers by all
lender-reporters in assessment area.
Data Source .................. American Community Survey (Census) .......................... HMDA Data.
Small Business
Geographic:
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Regulation BB provides large banks with the
option to collect and maintain consumer loan data
for one or more categories of consumer loans in the
event that a bank opts to have its consumer lending
evaluated. See 12 CFR 228.42(c)(1). Regulation BB
does not require small banks or intermediate small
banks to collect, maintain, or report loan data.
Instead, examiners evaluate these banks using
information maintained in a bank’s internal
operating systems or gathered from individual loan
files.
T
ABLE
1—L
IST OF
B
ENCHMARKS FOR
R
ETAIL
L
ENDING
D
ISTRIBUTION
M
ETRICS AND
D
ATA
S
OURCES
—Continued
Distribution metric Community benchmark Market benchmark
Data Point ..................... Percentage of small businesses with gross annual rev-
enue less than $1M in LMI census tracts in assess-
ment area.
Percentage of small business loans in LMI census
tracts by all lender-reporters in assessment area.
Data Source .................. Dun & Bradstreet ............................................................ CRA Data.
Borrower:
Data Point ..................... Percentage of small businesses with gross annual rev-
enue less than $1M in assessment area. Percentage of small business loans to small busi-
nesses with gross annual revenue less than $1M by
all lender-reporters in assessment area.
Data Source .................. Dun & Bradstreet ............................................................ CRA Data.
Small Farm
Geographic:
Data Point ..................... Percentage of small farms with gross annual revenue
less than $1M in LMI census tracts in assessment
area.
Percentage of small farm loans in LMI census tracts by
all lender-reporters in assessment area.
Data Source .................. Dun & Bradstreet ............................................................ CRA Data.
Borrower:
Data Point ..................... Percentage of small farms with gross annual revenue
less than $1M in assessment area. Percentage of small farm loans to small farms with
gross annual revenue less than $1M by all lender-re-
porters in assessment area.
Data Source .................. Dun & Bradstreet ............................................................ CRA Data.
Consumer
Geographic:
Data Point ..................... Percentage of households in LMI census tracts in as-
sessment area. Percentage of consumer loans in LMI census tracts by
all lender-reporters in assessment area.
Data Source .................. American Community Survey (Census) .......................... To be determined.
Borrower:
Data Point ..................... Percentage of LMI households in assessment area ...... Percentage of consumer loans to LMI borrowers by all
lender-reporters in assessment area.
Data Source .................. American Community Survey (Census) .......................... To be determined.
To limit data burden for small banks
that opt in to the metrics-based
approach, the Board proposes using
HMDA and CRA reporter data to
construct the market benchmark for
mortgage, small business, and small
farm product lines. In calculating the
market benchmark for mortgage lending,
the Board also proposes including all
mortgage lenders, not just depository
institutions. This is intended to capture
the full breadth of lending to LMI
borrowers in constructing the
benchmark.
As noted in Table 1, the Board has not
yet identified a data source for the
market benchmark for consumer loans
due to the lack of consistent data
collection on consumer lending.
74
To
use the same kind of benchmarks for
consumer loans as for other product
lines, market benchmarks would be
needed that measure: (1) The percentage
of consumer lending in LMI census
tracts as a comparison point for the
geographic distribution metric; and (2)
the percentage of consumer lending to
LMI borrowers as a comparison point
for the borrower distribution metric.
The Board is considering the use of
commercially available data from one or
more of the nationwide credit reporting
agencies to establish a market
benchmark for the geographic
distribution metric based on the rate of
new account openings in LMI census
tracts. This could facilitate a metrics-
based approach to evaluate consumer
lending without additional data
reporting requirements. A downside of
this approach is that it would not
provide a measure of consumer lending
to LMI borrowers that is necessary to
create a market benchmark for the
borrower distribution metric for
consumer lending. However, it could be
used to create a market benchmark for
the geographic distribution metric for
certain consumer lending products,
such as motor vehicle loans and credit
cards. Alternatively, consumer lending
could continue to be evaluated under
current examination procedures, which
do not incorporate a standardized
benchmark, or the Board could consider
other data sources to develop
benchmarks for consumer lending.
c. Establishing Quantitative Thresholds
Based on Community and Market
Benchmarks
The Board proposes using the
community and market benchmarks to
set the quantitative thresholds used for
determining whether a bank receives the
presumption of ‘‘satisfactory.’’ Through
this process, the Board believes that the
quantitative thresholds in place for a
presumption of ‘‘satisfactory’’ will
directly incorporate aspects of
performance context.
The approach for setting thresholds
would involve first calibrating each
benchmark to align with the Board’s
expectations for ‘‘satisfactory’’
performance sufficient to obtain the
certainty of a presumption. This
calibration would involve multiplying
each benchmark by a fixed percentage.
The Board would then refer to the
calibrated benchmarks as the
community threshold and market
threshold, respectively. While the same
fixed percentage would be used to
calibrate each benchmark in each
assessment area, the resulting
thresholds would, in fact, be tailored for
local community and market conditions
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because the benchmarks are based on
local data specific to each assessment
area.
For each distribution metric, the
lower of the community threshold or
market threshold would be selected as
the binding threshold. For example, for
the geographic distribution metric, if the
community threshold was 30 percent
and the market threshold was 35
percent, then the community threshold
of 30 percent would be used as the
binding threshold for this metric.
There are several benefits of the
proposed approach to setting
quantitative thresholds for a
presumption of ‘‘satisfactory’’ on the
Retail Lending Subtest as described
above. One benefit would be providing
a bank with greater certainty about CRA
performance expectations in an
assessment area because the thresholds
would be tailored to the different
conditions in different local
communities across the country. Rather
than setting a static threshold level
across the country that might be too
high or too low in certain areas, this
customized approach would facilitate a
bank’s ability to rely on the thresholds
in each of its assessment areas.
Another benefit is that the Board’s
approach would automatically adjust
the threshold levels over time in a way
that reflects changes in the business
cycle because the market benchmarks
reflect overall lending activity in each
assessment area. This approach could
reduce the instances in which the Board
would need to adjust the threshold
levels through a rulemaking or other
regulatory action. If, for example, a
market downturn affected an assessment
area by making LMI lending more
difficult, the downturn would likely
have a similar effect on all lenders in an
area, thereby causing the market
benchmark to decline. Because the
proposed approach would set a
threshold by selecting the lower of the
community threshold or market
threshold, the decline in the market
threshold itself during a downturn
could have the effect of lowering the
applicable threshold. Conversely, if
overall LMI lending opportunities
expanded, the threshold associated with
the lower of the community threshold or
market threshold may increase, creating
greater expectations of local banks to
make loans in LMI tracts, to LMI
borrowers, and to small businesses and
small farms.
On the other hand, thresholds could
be set low in areas where credit markets
as a whole are underserving LMI census
tracts, LMI borrowers, or both, which
could have the effect of providing the
presumption of ‘‘satisfactory’’ too often
in communities with significant unmet
credit needs. An approach that set
performance standards too low could
fail to fulfill one of the core purposes of
CRA, which is to encourage banks to
serve LMI communities. Additionally,
given CRA’s nexus with fair lending
laws and the broader context of CRA as
one of several complementary laws that
address inequities in credit access, the
Board is also mindful of analyzing how
the proposed approach to setting
thresholds would impact majority-
minority assessment areas relative to
other assessment areas. As part of its
ongoing analysis of threshold options,
the Board intends to closely analyze
these issues.
d. Meeting Quantitative Thresholds
Across Retail Product Lines
In addition to requiring that a bank
meet the binding thresholds for both
distribution metrics for a specific
product line, the Board also proposes
that banks should meet the binding
thresholds across all retail lending
product lines evaluated under the Retail
Lending Subtest in order to receive a
presumption of ‘‘satisfactory.’’ For
example, if a bank were evaluated based
on its home mortgage and small
business lending in an assessment area,
the bank would need to meet or exceed
both distribution metric thresholds for
its mortgage lending and both
distribution metric thresholds for its
small business lending—overall, a set of
four thresholds. An approach that
allowed such a bank to receive the
presumption based on only one of its
retail lending product lines could result
in overlooking major product lines
where the bank failed to serve LMI
communities or LMI borrowers.
Some stakeholders have expressed
concern that requiring banks to pass a
series of thresholds in an assessment
area could be onerous and complex for
banks evaluated under multiple retail
lending product lines. The Board seeks
to lessen this concern by only
evaluating major product lines under
the Retail Lending Subtest, which is
discussed in more detail in Section VI.
The Board also seeks to mitigate this
concern by using the same metrics for
the presumption of ‘‘satisfactory’’
approach and the performance ranges
approach described in Section V, and by
providing simple dashboards to reduce
complexity and make the thresholds
transparent.
e. Ease of Use: Providing Dashboards To
Track Progress
The proposed approach is intended to
help advance the objectives of certainty
and transparency in setting CRA
performance expectations for retail
lending, and the Board is interested in
ways to make the approach easy to
adopt for banks and for the public. To
this end, the Board is exploring
providing banks with an online portal
with dashboards, as shown in Figure 1,
that would show thresholds for each
major product line for a specific
assessment area, with updates made on
a quarterly or annual basis, as
applicable. This would enable banks to
track their own performance throughout
an evaluation period against the
relevant standards. For HMDA and/or
CRA reporters, the dashboards could
display a bank’s metrics calculations to
date in addition to the applicable
thresholds.
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f. Limited Circumstances To Rebut the
Presumption
The Board believes that granting a
presumption of ‘‘satisfactory’’ can
provide banks with greater certainty
about performance expectations and
their results on the Retail Lending
Subtest. To preserve this certainty, the
Board is considering allowing
examiners to rebut a ‘‘satisfactory’’
presumption in a specific assessment
area only in cases of consumer
compliance violations involving
discrimination and other illegal credit
practices, as specified in Section X.
Discrimination and other illegal credit
practices can be indicative of
performance that is lower than the
metrics and quantitative thresholds
would otherwise indicate. The process
for rebutting a presumption in an
assessment area would not change the
process for potentially downgrading a
rating for an institution overall.
Discrimination and other illegal credit
practices would also be considered
separately under the ratings provisions,
as discussed in Section X.
Request for Feedback:
Question 15. Are the retail lending
distribution metrics appropriate for all
retail banks, or are there adjustments
that should be made for small banks?
Question 16. Should the presumption
of ‘‘satisfactory’’ approach combine low-
and moderate-income categories when
calculating the retail lending
distribution metrics in order to reduce
overall complexity, or should they be
reviewed separately to emphasize
performance within each category?
Question 17. Is it preferable to retain
the current approach of evaluating
consumer lending levels without the use
of standardized community and market
benchmarks, or to use credit bureau data
or other sources to create benchmarks
for consumer lending?
Question 18. How can the Board
mitigate concerns that the threshold for
a presumption of ‘‘satisfactory’’ could be
set too low in communities underserved
by all lenders?
5. Threshold Levels for Presumption of
‘‘Satisfactory’’
A foundational part of the
presumption of ‘‘satisfactory’’ approach
is determining where to set the
threshold level for this presumption.
Threshold levels that are set too low
could provide a presumption of
‘‘satisfactory’’ for too many banks and
potentially erode CRA performance over
time due to inadequate incentives.
Threshold levels that are set too high
could be seen as unachievable and
provide few banks with the certainty of
obtaining a presumption.
a. Overview of Proposed Threshold
Levels
The Board has conducted an analysis
of potential threshold levels for a
presumption of ‘‘satisfactory,’’ and this
section suggests a threshold level for the
retail lending distribution metrics. This
threshold level would establish the
fixed percentages for calibrating the
community benchmarks and market
benchmarks for purposes of identifying
the level of performance necessary to
obtain a presumption of ‘‘satisfactory.’’
Specifically, the threshold level
would set the ‘‘satisfactory’’
presumption level at 65 percent of the
community benchmark and 70 percent
of the market benchmark. An example
illustrates this approach using the
borrower distribution metric for
mortgage lending. If the community
benchmark shows that 30 percent of
families in an assessment area are LMI,
then the community threshold would be
19.5 percent (30 percent times 65
percent). If the market benchmark
shows that 35 percent of mortgage
originations in the assessment area are
to LMI borrowers, then the market
threshold would be 24.5 percent (35
percent times 70 percent). Because the
community threshold is lower than the
market threshold, a bank’s performance
on the borrower distribution metric for
mortgage lending (which measures the
percentage of a bank’s mortgage lending
to LMI borrowers) would need to meet
or exceed the binding threshold of 19.5
percent in order to earn the
presumption of ‘‘satisfactory.’’
b. Analysis of Proposed Threshold Level
Using CRA Analytics Data Tables
To understand the impact of different
threshold levels for the retail lending
distribution metrics using past CRA
examinations, the Board used the CRA
Analytics Data Tables. These data tables
combine publicly available information,
proprietary data, and data that the Board
compiled from past CRA performance
evaluations. In total, the CRA Data
Analytics Tables include data from a
stratified random sample of
approximately 6,300 performance
evaluations from 2004 to 2017, with the
sampling designed to capture the range
of bank sizes, regulatory agencies, stages
of the business cycle, and performance
ratings.
The Board used the CRA Analytics
Data Tables to evaluate two related
issues. First, the data were used to
identify threshold options that would
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The sample used to conduct this analysis was
limited to assessment areas for which the bank in
question: (1) Passed the retail lending screen
(limiting the sample to large banks, for which the
necessary data was available); and (2) had some
amount of community development lending
reported in its performance evaluation. These
restrictions were imposed so that the sample would
be limited to banks whose lending test performance
conclusions were most tightly tied to the borrower
income and geographic distribution of their loans.
Banks with low levels of retail or community
development lending could have received a ‘‘needs
to improve’’ or ‘‘substantial noncompliance’’
conclusion or rating on the lending test despite a
good distribution of retail lending due to this low
level of lending, so these observations were
dropped from this analysis, which was intended to
focus solely on the distribution metrics.
76
For each assessment area in the publicly
available merged data table, the analysis used the
available data to calculate each component
necessary to retroactively apply the retail lending
distribution metrics to banks’ home mortgage and
small business lending activities in individual
assessment areas for a given examination. To be
included in this analysis, a loan product had to
constitute a major product line, as described in
Section VI, in that assessment area. Loan counts
were used to approximate the major product line
threshold to account for the lack of loan dollar
amount data for small banks in the merged data
table. The banks’ geographic and borrower
distribution metrics, as well as the community and
market benchmarks, were calculated for each
assessment area, using HMDA and CRA small
business reported data or loan data extracted from
performance evaluations for small banks where
applicable. If all of the data necessary to calculate
the retail distribution metrics and benchmarks were
available then each major product line was tested
using the thresholds of 65 percent for the
community benchmark and 70 percent for the
market benchmark. Some assessment areas were not
scored due to lack of data or other data quality
issues, but of the 7,069 assessment areas that were
scored, 63 percent received the presumption.
likely provide a presumption of
‘‘satisfactory’’ performance for banks
that had received assessment area
conclusions or ratings of ‘‘high
satisfactory’’ or ‘‘outstanding’’ on the
lending test in their past examinations.
Second, the data were used to identify
options that were not likely to provide
a presumption for banks that had
received assessment area conclusions or
ratings of ‘‘needs to improve’’ or
‘‘substantial noncompliance’’ lending
performance on past examinations. In
this way, the Board’s analysis sought to
identify the level of performance on the
proposed Retail Lending Subtest that
would be strongly associated with a
conclusion of ‘‘satisfactory’’ or better
based on past performance evaluations.
Based on this analysis of past
examinations using the CRA Analytics
Data Tables, the Board identified the
threshold level that separates ‘‘high
satisfactory’’ or ‘‘outstanding’’
performance from ‘‘needs to improve’’
or ‘‘substantial noncompliance’’
performance on past examinations. The
Board first analyzed how many
individual assessment areas would have
received the presumption of
‘‘satisfactory’’ using the threshold level
set at 65 percent of the community
benchmark and at 70 percent of the
market benchmark. This analysis
showed a presumption of ‘‘satisfactory’’
performance being granted to over 70
percent of assessment areas with a ‘‘high
satisfactory’’ or ‘‘outstanding’’ on a past
examination and less than 15 percent of
the assessment areas with a ‘‘needs to
improve’’ or ‘‘substantial
noncompliance’’ on a past
examination.
75
To understand instances where
threshold levels would have provided a
different result compared to past
examinations, the Board also undertook
a review of a sample of performance
evaluations where the CRA examination
conclusions on past examinations did
not match the presumption approach
using the retail lending distribution
metrics. For banks that received a
‘‘needs to improve’’ in an assessment
area on the existing lending test but
would have passed the distribution
metric based on the threshold level
described above, the review found that
the most common reason given in the
performance evaluation was a low
absolute level of either retail or
community development lending.
Substantive fair lending or unfair or
deceptive acts or practices violations
also explained some of these outliers.
The Board’s proposals to use a retail
lending screen and to allow
discrimination or other illegal credit
practices to rebut the presumption of
‘‘satisfactory’’ are intended to address
these kinds of situations.
Conversely, where applying the
distribution metrics would not have
resulted in the bank receiving a
presumption of ‘‘satisfactory’’
performance in an assessment area but
the assessment area conclusion recorded
in the past performance evaluation was
‘‘satisfactory’’ or better, the conclusion
frequently was justified in the
performance evaluation by a perceived
compensating factor. For example, in
some cases, a high percentage of loans
in LMI geographies was viewed as
making up for a low percentage of loans
to LMI borrowers. Another common
reason was the examiner making use of
different comparators, or making
adjustments to the comparators, relative
to the presumption of ‘‘satisfactory’’
approach discussed above. The
presumption of ‘‘satisfactory’’ proposal
would increase rigor and consistency,
and reduce uncertainty caused by
examiner discretion. This analysis
supports the conclusion that the
proposed approach, in combination
with the retail lending screen and the
limited rebuttals of a presumption,
would follow the same criteria and
guidelines that banks would have been
evaluated under in the past, but would
do so with improved clarity,
transparency and consistency.
To better understand the potential
impact of a threshold level set at 65
percent of the community benchmark
and 70 percent of the market
benchmark, the Board also analyzed
how the proposed threshold level would
perform for banks of different sizes,
locations, and market conditions. To
this end, using a sample of 7,067
assessment areas from the CRA
Analytics Data Tables, the Board
determined how frequently banks
would obtain a presumption of
‘‘satisfactory’’ performance in an
assessment area at different points in
the market cycle, in metropolitan and
nonmetropolitan areas, and for different
bank asset sizes.
76
Results of these comparisons are
shown in Table 2. Examination years
from 2005 through 2009 are defined as
falling in a boom period, from 2010
through 2013 are defined as falling in a
downturn period, and from 2014
through 2017 are defined as falling in a
recovery period. Performance
evaluations generally cover lending over
a period of years prior to the actual
examination date, so performance
evaluations even into 2009 were
covering loans made prior to the
financial crisis. Assessment areas were
defined as metropolitan if they were
located in a metropolitan statistical area
and as nonmetropolitan if they were
not. Finally, banks were divided into
categories of less than $300 million in
assets, between $300 million and $1
billion, between $1 billion and $50
billion, and greater than $50 billion.
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Data constraints make it difficult to precisely
estimate the figure for the smallest banks because
the data are neither as complete nor as precise as
the data for large banks. For example, although
large banks report assessment area boundaries at the
census tract level, small and intermediate small
bank assessment areas (derived from extracting data
from performance evaluations) are generally
recorded only at the county level. In cases when a
small or intermediate small bank took only part of
a county in its assessment area, the Board was not
able to identify which census tracts within that
county were included. As a result, the Board’s
analysis calculated the presumption of
‘‘satisfactory’’ performance thresholds for specific
assessment areas based on benchmarks for the full
county, even when the bank took a partial county.
The Board also analyzed how the retail lending
screen would work in conjunction with the retail
lending distribution metrics by comparing bank
performances using both metrics approaches for
large retail banks, because the data to assess the
impact of the screen on small banks and
intermediate small banks is not currently available.
This analysis found that the retail lending screen
slightly decreased the share of large bank
assessment areas receiving the presumption, to
about 58 percent for banks above $1 billion in asset
size.
T
ABLE
2—P
ERCENT OF
A
SSESSMENT
A
REAS
O
BTAINING
P
RESUMPTION
A
CROSS
D
IFFERENT
B
USINESS
C
YCLES
,
L
OCATIONS
,
AND
B
ANKS OF
D
IFFERENT
A
SSET
S
IZES
Scenario Category Result
Number of
assessment
areas Percent
Market Cycle ................................................... Boom .............................................................. Pass ............... 871 66
Not Pass ........ 444 34
Downturn ........................................................ Pass ............... 1,755 64
Not Pass ........ 970 36
Recovery ........................................................ Pass ............... 1,836 61
Not Pass ........ 1,191 39
Assessment Area Location ............................. Nonmetropolitan ............................................. Pass ............... 1,389 62
Not Pass ........ 840 38
Metropolitan .................................................... Pass ............... 3,073 64
Not Pass ........ 1,765 36
Asset Category ............................................... <$300 Million .................................................. Pass ............... 423 59
Not Pass ........ 288 41
$300 Million to $1 Billion ................................ Pass ............... 901 66
Not Pass ........ 467 34
$1 to $50 Billion ............................................. Pass ............... 2,118 62
Not Pass ........ 1,324 38
>$50 Billion .................................................... Pass ............... 1,020 66
Not Pass ........ 526 34
Under the proposed threshold levels,
the retail lending distribution metrics
grant the presumption of ‘‘satisfactory’’
to similar percentages of assessment
areas across the three phases of the
market cycle, metropolitan and
nonmetropolitan areas, and bank asset
sizes. The share of assessment areas
meeting this potential presumption
standard falls slightly over the course of
the previous economic cycle from boom,
to downturn, to recovery period, starting
at 66 percent and falling to 61 percent.
Metropolitan and nonmetropolitan bank
assessment areas met the potential
presumption standard in 64 and 62
percent of cases, respectively. Finally,
there was some variation in the share of
assessment areas meeting the standard
across bank sizes, without a clear
pattern by size. For banks with less than
$300 million in assets, 59 percent of
assessment areas would meet the
presumption, compared to 66 percent of
the largest bank assessment areas.
77
Overall, this analysis suggests that the
proposed metrics-based approach
appropriately tailors for different
economic circumstances, geographies,
and bank sizes.
Request for Feedback:
Question 19. Would the proposed
presumption of ‘‘satisfactory’’ approach
for the Retail Lending Subtest be an
appropriate way to increase clarity,
consistency, and transparency?
Question 20. Is the approach to setting
the threshold levels and a potential
threshold level set at 65 percent of the
community benchmark and at 70
percent of the market benchmark
appropriate?
Question 21. Will the approach for
setting the presumption for
‘‘satisfactory’’ work for all categories of
banks, including small banks and those
in rural communities?
6. Using ‘‘Performance Ranges’’ to
Complement the Presumption of
‘‘Satisfactory’’
To provide additional certainty, the
Board proposes using the retail lending
distribution metrics and benchmarks to
establish performance ranges for each
recommended conclusion—
‘‘outstanding,’’ ‘‘satisfactory,’’ ‘‘needs to
improve,’’ and ‘‘substantial
noncompliance.’’
a. Overview of Performance Ranges
Approach
Performance ranges could be used to
help reach Retail Lending Subtest
conclusions in two ways. First, when a
bank receives the presumption of
‘‘satisfactory,’’ this approach would
provide transparency and consistency
about the level of performance that
would merit upgrading to an
‘‘outstanding.’’ Second, when a bank
does not receive the presumption of
‘‘satisfactory,’’ the performance ranges
could help provide greater consistency
and predictability on which of the four
possible conclusions the bank receives
on the Retail Lending Subtest. In these
two situations, the recommended
conclusions developed through the
performance ranges approach could be
combined with an examiner’s review of
specific performance context factors
along with any details about the bank’s
specific activities to reach a final
conclusion for the Retail Lending
Subtest.
For each product line evaluated under
the Retail Lending Subtest in an
assessment area, the Board would derive
performance ranges from community
benchmarks and market benchmarks,
similar to the approach to calculate the
threshold for a presumption of
‘‘satisfactory.’’ The Board would then
compare how well a bank performed on
the retail lending distribution metrics
relative to these performance ranges.
However, while the presumption test
would combine low- and moderate-
income groups for each distribution
metric, the performance ranges would
assess performance separately for low-
income and moderate-income
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The different components (geographic and
borrower distribution metrics, low-income and
moderate-income categories, and each major
product line) could be weighted by the amount of
business that the bank conducts in each product
line, and, within each product line, by the value of
the community benchmark. The proposed
community benchmarks are the share of LMI
households, small businesses or farms, or
households or establishments in LMI
neighborhoods, as applicable, in the assessment
area. The weighting would be intended to ensure
that the bank’s recommended conclusion based on
the performance ranges appropriately reflects both
the bank’s business model (giving more weight to
products the bank specializes in for each
assessment area) and the credit opportunities and
needs in that assessment area.
79
12 U.S.C. 2903(b).
borrowers. This would focus more
attention (that of banks, examiners, and
interested members of the community)
on how a bank is serving the low-
income segment of the population, in
addition to the broader LMI category.
The Board would compute a weighted
average to determine how well the bank
performed on different components of
the retail lending distribution metrics
relative to the performance ranges in
order to reach an overall recommended
assessment area conclusion on the
Retail Lending Subtest.
78
Averaging the
different components of the retail
lending distribution metrics would
allow excellent performance in one part
of a bank’s retail lending to potentially
offset lower performance in another
aspect of that lending. This approach
could address feedback from some
stakeholders that raised concerns about
the presumption of ‘‘satisfactory’’
approach reducing the retail lending
evaluation to a pass-fail test.
Another benefit of using the
performance ranges approach in
addition to a presumption of
‘‘satisfactory’’ approach would be to
encourage excellent performance by
providing clear ranges for an
‘‘outstanding.’’ This is intended to
address concerns that banks currently
outperforming the threshold for a
presumption of ‘‘satisfactory’’ could
reduce their levels of performance
closer to the threshold level.
b. Incorporating Targeted Performance
Context and Qualitative Aspects of
Performance Into the Performance
Ranges Approach
In addition to seeking greater clarity
in CRA performance evaluations,
stakeholders have also expressed
support for considering performance
context and other qualitative aspects in
CRA examinations. Although the
approach to setting thresholds described
in this section already incorporates key
aspects of performance context
information through the use of the
quantitative benchmarks for each
assessment area that are calibrated to
local data, it is also important to
consider the limited aspects of
performance context not considered in
the metrics, including qualitative
information about performance. For
example, a bank with capacity and
constraint issues may deserve a
‘‘satisfactory’’ conclusion instead of
‘‘needs to improve’’ if additional
lending would not be consistent with
safety and soundness considerations.
Further, performance context and
qualitative aspects of lending could
merit an increase from ‘‘satisfactory’’ to
‘‘outstanding’’ when considered
cumulatively.
Under the proposed approach,
examiners would consider a
combination of factors showing
responsiveness, such as the margin by
which a bank surpasses the thresholds
applicable to the retail lending
distribution metrics, flexible or
innovative lending products and
programs, activities undertaken in
cooperation with MDIs, women-owned
financial institutions, or low-income
credit unions that help meet the credit
needs of local communities in which
these institutions are respectively
chartered,
79
and the bank’s record of
taking action, if warranted, in response
to written comments submitted to the
bank about its performance in
responding to the credit needs in its
assessment area(s).
For example, a bank that falls within
the ‘‘satisfactory’’ range of performance
could be considered to have an
‘‘outstanding’’ retail lending record by
forming lending consortiums with, or
purchasing loans originated by, MDIs.
Providing a list of these kinds of
activities related to ‘‘outstanding’’
performance could provide additional
transparency and consistency when
considering performance context and
qualitative information.
Unlike current examination
procedures, this approach would
specifically exclude using performance
context based on economic or other
conditions affecting the assessment area
as a whole. Any such factors that would
either limit or bolster lending in LMI
tracts, or to LMI borrowers or small
businesses or farms, would generally
already be reflected in the benchmarks.
As a result, examiners would be
restricted to using bank-specific
performance context factors that affect
the bank being evaluated differently
than its in-market peers.
Request for Feedback:
Question 22. Does the performance
ranges approach complement the use of
a presumption of ‘‘satisfactory’’? How
should the Board determine the
performance range for a ‘‘satisfactory’’
in conjunction with the threshold for a
presumption of ‘‘satisfactory’’? How
should the Board also determine the
performance ranges for ‘‘outstanding,’’
‘‘needs to improve,’’ and ‘‘substantial
noncompliance’’?
Question 23. Should adjustments to
the recommended conclusion under the
performance ranges approach be
incorporated based on examiner
judgment, a predetermined list of
performance context factors, specific
activities, or other means to ensure
qualitative aspects and performance
context are taken into account in a
limited manner? If specific kinds of
activities are listed as being related to
‘‘outstanding’’ performance, what
activities should be included?
B. Retail Services Subtest Evaluation
Approach
The Board proposes a Retail Services
Subtest that would use a predominately
qualitative approach, while
incorporating new quantitative
measures, and that would apply only to
large retail banks. In contemplating how
to evaluate retail services, the Board
seeks to encourage banks to offer
important services in LMI communities;
to increase transparency of evaluation
criteria; and to account for changes in
the way some customers interact with
their banks, including the widespread
use of mobile or online banking and the
declining number of bank branches. As
many banks nationwide closed their
branch lobbies in response to the
COVID–19 pandemic, consumers have
relied more on self-service delivery
channels such as ATMs, online banking,
and mobile banking services. At the
same time, branches remain a vital
component of providing banking
services to many LMI communities, as
well as many rural communities.
1. Current Structure for Evaluating
Retail Services Activity
Retail services are currently evaluated
only for large retail banks under the
large bank service test. The evaluation
of retail services incorporates
quantitative and qualitative criteria, but
does not specify a level of retail services
activity that is tied to certain
performance conclusions.
Under Regulation BB, examiners
review the following four factors when
evaluating a bank’s retail services
activity: (1) The distribution of branches
among low-, moderate-, middle-, and
upper-income census tracts; (2) an
institution’s record of opening and
closing branches and its effects,
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Regulation BB provides a non-exhaustive list of
‘‘alternative (non-branch) delivery systems’’ which
include: ‘‘ATMs, ATMs not owned or operated by
or exclusively for the bank, banking by telephone
or computer, loan production offices, and bank-at-
work or bank-by-mail programs.’’ 12 CFR
228.24(d)(3).
81
See 12 CFR 228.24(d).
82
See 12 CFR 228.24(d)(2); Q&A §ll0;.24(d)—
1.
83
See Q&A §ll.24(d)—1.
84
See Q&A §ll.24(a)—1.
85
See Q&A §ll.24(d)(4)—1.
86
See Ding and Reid, ‘‘The Community
Reinvestment Act (CRA) and Bank Branching
Patterns.’’
87
See id.
particularly regarding those branches
located in LMI census tracts or
primarily serving LMI individuals; (3)
the availability and effectiveness of
alternative (subsequently to be referred
to as non-branch) delivery systems
80
for
delivering retail banking services in LMI
census tracts and to LMI individuals;
and (4) the range of services provided in
low-, moderate-, middle-, and upper-
income census tracts and the degree to
which the services are tailored to meet
the needs of those census tracts.
81
The primary emphasis for the large
bank retail services test is on branches.
Examiners evaluate the distribution of
branches by comparing the percentage
of branches and ATMs among low-,
moderate-, middle-, and upper-income
census tracts to the percentage of the
population that resides in these tracts,
particularly LMI tracts. Examiners also
consider the reasonableness of business
hours and services offered at branches
and whether there is any notable
difference between hours of operation
and services offered at branches in LMI
tracts compared to branches in middle-
and upper-income tracts. Lastly,
examiners analyze a bank’s record of
opening and closing branches relative to
its current branch distribution and the
impact of branch openings and closings,
particularly on LMI census tracts or
individuals.
82
The evaluation of retail banking
services relies on quantitative data from
the bank’s public file to assess the
number of branches in an assessment
area and the banking services provided,
including the hours of operation and
available products at each branch.
Examiners have discretion to review
these data in light of performance
context, but there is little guidance on
the factors that should be considered.
Under current examination procedures,
non-branch delivery channels are
considered only to the extent that these
channels are effective alternatives in
providing services to LMI individuals
and to LMI census tracts.
83
In addition to delivery systems,
examiners consider any other
information provided by a bank related
to both retail products and services,
such as the range of products and
services generally offered at their
branches, transaction fees, and the
degree to which services are tailored to
meet the needs of particular
geographies.
84
Current guidance
explains that examiners will consider
products and services that improve
access to financial services, or decrease
costs, for LMI individuals. Examiners
will also review data regarding the costs
and features of deposit products,
account usage and retention, geographic
location of accountholders, and any
other relevant information available
demonstrating that a bank’s services are
tailored to meet the convenience and
needs of its assessment area(s),
particularly LMI geographies or LMI
individuals.
85
However, there is no
guidance on how products and services
activities will be weighed in deriving
retail test conclusions or the data used
to evaluate performance. Additionally,
banks typically collect this type of
information on products and services at
the institution level. As a result,
examiners do not typically have the data
needed to evaluate differences in
products and services across assessment
are