Community Reinvestment Act

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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.

70

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.

69

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

areas and this component receives

minimal weight in determining

assessment area conclusions for the

service test.

2. Stakeholder Feedback on Retail

Services

Some community group stakeholders

expressed support for CRA’s role in

encouraging banks to maintain branches

in LMI communities and for the current

structure of the retail services

evaluation. Community group and

industry stakeholders expressed support

for clearer standards for evaluating

products and a more robust analysis of

products, and advocated for an

approach to evaluating retail services

that relies on more data and standard

measures of performance.

Community group stakeholders have

expressed a range of opinions regarding

the primary emphasis on branches in

the current retail services evaluation

based on their historic importance in

providing consumers, particularly LMI

individuals, with home mortgage loans

and basic banking services and

providing credit to small businesses.

86

Some community group stakeholders

worry that removing the primary

emphasis on the location of branches in

the evaluation of retail services could

hasten the pace of branch closures. This

is supported by research findings that

current CRA requirements are

associated with a lower risk of branch

closure, particularly in neighborhoods

with fewer branches and in major

metropolitan areas.

87

Industry stakeholders have suggested

that greater weight should be placed on

the evaluation of non-branch delivery

channels given ongoing trends in the

banking industry. Although branches

were still the most widely used bank

channel prior to the COVID–19

pandemic, branch usage overall has

declined in recent years. Community

group stakeholders expressed support

for giving a bank more credit for non-

branch delivery channels if the bank

maintains data demonstrating

corresponding benefits to LMI

consumers.

Community group stakeholders have

also expressed concern that a reduced

focus on retail services could result in

banks offering fewer products and

services to LMI individuals and in LMI

census tracts. These stakeholders

expressed support for an enhanced

evaluation of banking products that

places greater emphasis on assessing

deposit account features and their

usage, with a particular focus on

products and services for LMI

individuals. Some community group

stakeholders also suggested that banks

should be assessed on the impact of

their products, not simply upon usage.

3. Proposed Retail Services Subtest

Framework

The Board proposes a Retail Services

Subtest for large banks that would

evaluate retail services under two

components: (1) Delivery systems; and

(2) deposit products. For the delivery

systems component, the Board proposes

evaluating the distribution of a bank’s

branches, branch-based services (e.g.,

hours of operation, bilingual services,

disability accommodation, payroll and

check cashing services, remittance

services), and non-branch delivery

channels. This approach is intended to

recognize the importance of branches,

particularly for LMI individuals and

LMI communities, while also ensuring

that CRA is flexible enough to give

credit to other delivery channels and

services that promote accessibility and

usage.

For the deposit products component,

the Board proposes evaluating a bank’s

deposit products, including checking

and savings accounts, focusing on those

tailored to meet the needs of LMI

individuals. Compared to how

evaluations are currently conducted,

this proposed approach would elevate

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The aggregate number of branches in an

assessment area figure includes full-service and limited-service branch types as defined in the FDIC

SOD.

the focus on deposit products offered

and the degree to which these products

are available and responsive to the

needs of LMI individuals and LMI

communities. The Board is also

exploring the option of requiring the

very largest banks to provide a strategic

statement in advance of their CRA

examinations outlining their business

strategy for offering deposit products

that are responsive to the needs of LMI

and other underserved communities.

The approach of dividing the Retail

Services Subtest into delivery systems

and deposit products would more

clearly articulate the different

components of the evaluation of retail

services and how they relate to one

another. Additionally, the proposed

approach would leverage quantitative

benchmarks to evaluate a bank’s branch

distribution. Lastly, the Board is

considering what additional

quantitative information could best

facilitate transparent and meaningful

evaluations of delivery systems and

deposit products, while taking into

account the objective of minimizing

data burden for institutions where

possible.

a. Delivery Systems

The Board proposes evaluating the

full breadth of bank delivery systems by

maintaining the emphasis on the

importance of branches and increasing

the focus on non-branch delivery

channels. The proposed approach

would evaluate all four current branch-

related evaluation factors (branch

distribution, the record of opening and

closing branches, branch-related

services, and non-branch delivery

systems) under the delivery systems

component of the retail services

evaluation. The proposal also would

leverage quantitative benchmarks to

inform the branch distribution analysis.

Additionally, the Board is exploring

whether banks should receive

additional consideration for operating

branches in banking deserts. As part of

modernizing the CRA framework, the

Board also proposes more fully

evaluating non-branch delivery systems

to address the trend toward greater use

of online and mobile banking.

i. Branch Distribution

Under the proposed Retail Services

Subtest, analyzing the distribution of

bank branches across census tracts of

different income levels would continue

to be a core part of evaluating delivery

systems. The Board is considering

incorporating several quantitative

benchmarks that would complement a

qualitative evaluation in order to

provide greater transparency in

evaluations and to provide a more

comprehensive picture of the physical

distribution of branches in assessment

areas. The record of opening and closing

branches would continue to rely on

examiner judgment to determine

whether changes in branch locations

affected the accessibility of branch

delivery channels, particularly in LMI

areas or to LMI individuals.

Branch Distribution Benchmarks. The

Board is proposing using data specific to

individual assessment areas, referred to

as benchmarks, as points of comparison

for examiners when evaluating a bank’s

branch distribution. Building on current

practice, three community benchmarks

and one market benchmark would be

used in conjunction with examiner

judgment and performance context

information to assess a bank’s branch

distribution.

Table 3 describes the proposed

community benchmarks and their

respective data sources. These

benchmarks would allow examiners to

compare a bank’s branch distribution to

local data to help determine whether

branches are accessible in LMI

communities, to individuals of different

income levels, and to businesses in the

assessment area, and would standardize

examiner practice that is used today in

some evaluations.

T

ABLE

3—C

OMMUNITY

B

ENCHMARKS FOR

R

ETAIL

S

ERVICES

—B

RANCH

D

ISTRIBUTION

Benchmark(s) Data source

Percentage of census tracts in an assessment area by tract income level ................................... American Community Survey (Census).

Percentage of households in an assessment area by tract income level ...................................... American Community Survey (Census).

Percentage of total businesses in an assessment area by tract income level .............................. Dun & Bradstreet.

The Board is also considering a new

aggregate measurement of branch

distribution—referred to as a market

benchmark—that would measure the

distribution of all bank branches in the

same assessment area by tract income.

Table 4 provides an overview of the

proposed market benchmark and the

associated data source.

T

ABLE

4—M

ARKET

B

ENCHMARK FOR

R

ETAIL

S

ERVICES

—B

RANCH

D

ISTRIBUTION

Benchmark Data source

Percentage of all bank branches

88

in an assessment area by tract income level ........................ FDIC SOD Survey

The use of a market benchmark could

improve the branch distribution

analysis in several ways. First, making

such a comparison could give examiners

more context for determining how much

opportunity exists for providing retail

services in tracts of different income

levels. Second, examiners may be able

to identify assessment areas with a

relatively low concentration of branches

in LMI areas, which could be indicative

of a banking desert. If a bank has a

branch in a low-income or moderate-

income census tract where few other

lenders have branches, this could

indicate particularly responsive or

meaningful branch activity for the bank.

Table 5 provides an example of how

the community and market benchmarks

could be used in evaluating a bank’s

branch distribution.

Table 5: Geographic Branch

Distribution

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In the example above, the bank has

eight total branches in an assessment

area, with none of those branches in

low-income tracts and two in moderate-

income tracts. An examiner could

compare the fact that the bank has no

branches in low-income tracts with the

above community benchmarks. For

example, as shown in the table above,

8.5 percent of all census tracts in the

assessment area are low-income census

tracts. The examiner could also compare

the bank’s lack of branches in low-

income census tracts with the market

benchmark showing that 4.9 percent of

branches for all banks in the assessment

area are in low-income census tracts.

Similarly, the examiner could also

compare the fact that 25.0 percent of the

bank’s branches are located in

moderate-income tracts in the

assessment area with the above

community benchmarks. For example,

25.7 percent of all households in the

assessment area are moderate-income

households. The examiner could also

compare the bank’s distribution of

branches in moderate-income census

tracts with the market benchmark

showing that 22.0 percent of branches

for all banks in the assessment area are

in moderate-income census tracts.

An examiner could evaluate these

data in different ways based on

performance context. For example,

examiners could give more weight to the

bank’s lack of branches in low-income

census tracts combined with the fact

that community benchmarks

demonstrate there may be additional

opportunity to provide banking services

in these tracts. Alternatively, an

examiner could consider performance

context indicating that existing bank

branches in low-income census tracts

are adequately serving the needs of low-

income households, particularly in light

of the percentage of branches the bank

has in moderate-income census tracts.

As part of this performance context, an

examiner might consider the proximity

of the bank’s branches in moderate-

income census tracts to the low-income

census tracts in the assessment area.

Formalizing the use of benchmarks

would promote transparency in the

evaluation process, but given the

importance of the branch distribution

analysis, the Board does not believe

setting thresholds to inform

recommendations is appropriate.

Minimum Number of Branches for

Branch Distribution Analysis. When a

bank has a limited number of branches

in an assessment area, the Board is also

considering whether the branch

distribution analysis should be done

qualitatively without the use of the

community and market benchmarks

described above. Currently, examiners

review branch distribution for each

assessment area, regardless of the bank’s

number of branches or the income

distribution of census tracts in the

assessment area. As a result, a branch

distribution analysis is conducted even

when a bank has only one branch in an

assessment area. Instead, the Board is

considering whether a minimum

number of branches should be

established in order to use the

community and market benchmarks.

Assessing Branches in Banking

Deserts. The Board is also exploring

whether to give additional consideration

if a bank operates a branch in a

designated banking desert within its

assessment area(s). Creating such a

standard would involve determining

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See Board of Governors of the Federal Reserve

System, ‘‘Report on the Economic Well-Being of

U.S. Households in 2018—May 2019,’’ https://

www.federalreserve.gov/publications/2019-

economic-well-being-of-us-households-in-2018-

banking-and-credit.htm.

how to define banking deserts,

including the appropriate geographic

standards and whether standards should

be different for urban and rural areas.

Examiners could consider any

information an institution provides to

determine the degree to which delivery

systems are tailored to the convenience

and needs of banking deserts in the

assessment area.

ii. Branch-Related Services

As part of evaluating delivery

systems, the Board proposes clarifying

that the evaluation of branch-related

services would assess services that are

not covered in the branch distribution

analysis and that could improve access

to financial services, or decrease costs,

for LMI individuals. Examples of such

services include:

•Extended business hours, including

weekends, evenings, or by appointment;

•Providing bilingual/translation

services in specific geographies and

disability accommodations;

•Free or low-cost government,

payroll, or other check cashing services;

and

•Reasonably priced international

remittance services.

The Board is exploring how these

services could be evaluated more

consistently and what data could inform

an analysis of how these services are

meeting the needs of the assessment

area, particularly in LMI areas.

Consideration of Branches in Middle-

Income and Upper-Income Tracts. Some

industry stakeholders have suggested

that branches located in middle- and

upper-income census tracts and

adjacent to LMI tracts can provide

needed financial services to residents in

the LMI tracts. Some stakeholders have

raised concerns about inconsistencies in

the treatment and criteria that are

currently used to evaluate these

branches and have suggested that

common guidelines should be

developed to ensure a more consistent

evaluation. The Board is considering

whether and how these branches should

be incorporated into the analysis of

branch-related services. On one hand,

incorporating these branches into the

analysis could capture more of the

banking services banks are providing to

meet the needs of LMI areas.

Additionally, providing standard

guidelines would ensure that examiners

are treating these branches consistently.

On the other hand, including these

branches could de-emphasize the

importance of branches in LMI areas.

To balance these objectives, the Board

believes that if a bank requests

consideration of branches in middle-

and upper-income census tracts as a

means for delivering services to LMI

individuals or areas, the Board would

consider information provided by the

bank demonstrating that LMI consumers

use the branches. A review of this

information would inform the

qualitative review of branch-related

services and would not be incorporated

into the branch distribution analysis

described above. The Board is exploring

what type of data banks could provide

to demonstrate that branches located in

middle- and upper-income census tracts

serve LMI individuals or areas.

iii. Non-Branch Delivery Channels

In light of the growing use of online

and mobile banking services, the

proposed Retail Services Subtest would

enhance the approach to evaluating the

availability and effectiveness of non-

branch delivery channels in helping to

meet the needs of LMI census tracts and

individuals. An important consideration

in establishing a strengthened non-

branch delivery channels evaluation is

grounding this analysis in better and

more consistent data, while also being

mindful of the objective to minimize the

burden for banks in providing

additional data.

Under current guidance, examiners

consider a variety of factors to

determine whether a bank’s non-branch

delivery channels (ATMs, mobile, and

internet) are an effective means of

delivering retail banking services in LMI

areas and to LMI individuals. For

example, this includes the ease of

access, cost to consumers, and rate of

adoption and use of these delivery

channels. However, the type of data that

banks provide to examiners is

inconsistent and, as a result,

consideration of non-branch delivery

channels is uneven. Furthermore, there

are no clear standards on how data are

to be used to determine what constitutes

a specific level of performance.

Incorporating data on non-branch

delivery channels would enhance the

evaluation of non-branch delivery

channels. However, there are questions

about how to measure non-branch

delivery channels consistently and what

data points could be considered to

demonstrate usage by LMI individuals.

Possible data that could be considered

include rates of usage of online and

mobile services by customers (grouped

by census tract) and rates of usage by

customers (grouped by census tract) for

the different types of ATMs offered by

a bank. One challenge, however, is that

usage data is proprietary and varies

widely by bank. Due to proprietary

business considerations, the data might

be available only to examiners and may

not enhance public insight.

Request for Feedback:

Question 24. In addition to the

number of branches and the community

and market quantitative benchmarks

discussed above, how should examiners

evaluate a bank’s branch distribution?

Question 25. How should banking

deserts be defined, and should the

definition be different in urban and

rural areas?

Question 26. What are the appropriate

data points to determine accessibility of

delivery systems, including non-branch

delivery channel usage data? Should the

Board require certain specified

information in order for a bank to

receive consideration for non-branch

delivery channels?

Question 27. Should a bank receive

consideration for delivering services to

LMI consumers from branches located

in middle- and upper-income census

tracts? What types of data could banks

provide to demonstrate that branches

located in middle- and upper-income

tracts primarily serve LMI individuals

or areas?

Question 28. Would establishing

quantitative benchmarks for evaluating

non-branch delivery channels be

beneficial? If so, what benchmarks

would be appropriate?

b. Deposit Products

The Board is considering creating a

second prong of the Retail Services

Subtest that focuses specifically on the

degree to which deposit products are

responsive to the needs of LMI

consumers. Given the number of LMI

individuals who are unbanked or

underbanked,

89

deposit products that

are tailored to meet the needs of LMI

consumers could be considered to be

responsive under the Retail Services

Subtest. Examples of such products

include:

•Low-cost transaction accounts

which are accessible through debit cards

or general-purpose reloadable prepaid

cards;

•Individual development accounts;

•Accounts with low or no monthly

opening deposit or balance fees;

•Accounts with low or no overdraft

and insufficient funds fees;

•Free or low-cost government,

payroll, or other check cashing services;

and

•Reasonably priced remittance

services.

As noted, under current examination

procedures, examiners review deposit

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See Q&A §ll.24(d)(3)—1.

91

See 12 CFR 228.12(l) (defining ‘‘home mortgage

loan’’); 12 CFR 228.12(v) (defining ‘‘small business

loan’’); 12 CFR 228.12(w) (defining ‘‘small farm

loan’’); and 12 CFR 228.12(j) (defining ‘‘consumer

loan’’).

products on a limited basis when

considering the full range of services

offered by a bank in census tracts of

different income levels.

90

One key

reason the review of deposit products is

generally given minimal weight is that

data provided by banks to examiners on

deposit accounts are generally limited

and often provided only for the

institution overall, rather than at the

assessment area level.

The Board proposes to elevate and

strengthen the evaluation of deposit

products that are responsive to the

needs of assessment areas, and

particularly LMI communities and

consumers. In addition to assessing the

availability of deposit products and the

degree to which these products are

tailored to meet the needs of LMI

consumers, the Board is also

considering how to evaluate the usage

and impact of such products. To

accomplish these objectives, the Board

is exploring whether it would be

beneficial to have additional data to

inform the analysis of deposit products,

such as the types of deposit products

offered, product costs, account features

tailored for needs of LMI consumers,

and product usage by LMI consumers

versus usage by all consumers. Access

to this type of data could help

examiners determine whether the bank

offers deposit products that are

responsive to the needs of LMI

consumers and the usage of such

products by LMI consumers.

Additionally, presenting relevant data

on the availability and usage of deposit

products in performance evaluations

would increase transparency and

provide more information to all

stakeholders on the types of deposit

products that are most responsive to the

needs of LMI consumers.

The Board recognizes that evaluating

deposit products presents challenges.

First, expanding the focus on deposit

products would require banks to

provide new information for CRA

evaluations, as well as the establishment

of new supervisory standards for

evaluating deposit products.

Additionally, due to proprietary

business considerations, data on deposit

products and customer usage might be

available only to examiners and may not

enhance public insight.

Despite these challenges, the Board

believes that the review of deposit

products is an important component of

CRA modernization given the critical

role of these products in providing an

entry point to the banking system for

LMI consumers, as well as a pathway for

these individuals to obtain access to

credit.

Other Revisions to Retail Services

Evaluation. The Board is also

contemplating whether additional

clarity and transparency could be

gained by requiring a subset of the

largest banks (e.g., banks with assets

over $10 billion or banks with assets

over of $50 billion) subject to the Retail

Services Subtest to provide a statement

articulating their approach to offering

retail banking products for serving LMI

individuals and communities across

their assessment area(s). Such

statements would allow examiners and

stakeholders to understand how the

largest banks—which serve a unique

role in providing financial services to a

large percentage of the population—

identify, monitor, track, and serve the

needs of LMI communities and

individuals through their product

offerings. A consideration with this

approach would be assessing the

potential benefits of requiring these

strategic statements relative to any

burden associated with preparing them.

Another consideration is whether this

strategic statement would be

appropriate to include in a bank’s

public file.

Request for Feedback:

Question 29. What types of data

would be beneficial and readily

available for determining whether

deposit products are responsive to

needs of LMI consumers and whether

these products are used by LMI

consumers?

Question 30. Are large banks able to

provide deposit product and usage data

at the assessment area level or should

this be reviewed only at the institution

level?

Question 31. Would it be beneficial to

require the largest banks to provide a

strategic statement articulating their

approach to offering retail banking

products? If so, what should be the

appropriate asset-size cutoff for banks

subject to providing a strategic

statement?

4. Retail Services Subtest Conclusions

The Board proposes reaching a single

Retail Services Subtest conclusion for

large banks in each of their assessment

areas. The Board proposes doing so in

a qualitative manner that draws on the

delivery systems and deposit products

component assessments described

above. In reaching an assessment area

conclusion for the Retail Services

Subtest, the Board is considering how

examiners should weight the delivery

systems component and the deposit

products component, respectively. The

Board recognizes the foundational and

practical importance of delivery systems

to creating and maintaining meaningful

access to banking products and services

for LMI consumers and communities.

Therefore, the Board proposes that more

weight be given to the delivery systems

component than to the deposit products

component when determining a single

Retail Services Subtest conclusion.

When deriving a conclusion for the

delivery systems component, the weight

given to branch distribution, branch-

related services, and non-branch

delivery channels would depend on a

bank’s profile and its capacity and

constraints, as well as performance

context. Relevant consumer compliance

violations, including any unfair,

deceptive or abusive acts or practices,

would have a negative impact on the

deposit products conclusion, and would

be taken into account in determining a

Retail Services Subtest conclusion.

Request for Feedback:

Question 32. How should the Board

weight delivery systems relative to

deposit products to provide a Retail

Services Subtest conclusion for each

assessment area? Should a large bank

receive a separate conclusion for the

delivery systems and deposit products

components in determining the

conclusion for the Retail Services

Subtest?

VI. Retail Lending Subtest Definitions

and Qualifying Activities

In contemplating revisions to

Regulation BB, the Board has

considered what qualifying retail

lending activities should be considered

in specific assessment areas, including

what targeted updates should be made

to retail lending definitions

91

and

qualifying activities, as part of CRA

modernization. The Board is

considering the following proposals:

•To use a clear quantitative

threshold, perhaps 15 percent, to

determine whether a bank’s home

mortgage, small business, and small

farm lending should be evaluated as

major product lines at the assessment

area level, given the availability of

public data for these product lines;

•To establish a substantial majority

threshold for the treatment of consumer

loans using measures based on either

the number, the dollar value, or a hybrid

approach, and that accounts for

different characteristics, purposes and

sizes by evaluating loan categories

separately;

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Current interagency guidance on when to

consider consumer lending at large banks states,

‘‘[t]he Agencies interpret ‘substantial majority’ to be

so significant a portion of the institution’s lending

activity by number and dollar volume of loans that

the lending test evaluation would not meaningfully

reflect its lending performance if consumer loans

were excluded.’’ See Q&A §__.22(a)(1)—2.

93

12 CFR 228.12(j).

•To update the thresholds for small

business loans and small farm loans that

were last set in 1995, while retaining the

nexus with the smallest small

businesses and small farms, which often

have the greatest unmet credit needs;

•To give consideration for non-

securitized home mortgage loans

purchased directly from an originating

lender (or affiliate), in order to strike a

balance between recognizing the

importance of first-time purchases for

originating banks that rely on other

lenders to directly provide liquidity and

addressing concerns about loan

churning; and

•To expand eligibility for retail

lending CRA activities in Indian

Country where there are high poverty

rates and a relative lack of bank

activities.

A. Determining Which Loans Are

Evaluated Using Retail Lending Metrics

Currently, large banks are evaluated

on all home mortgage, small business,

and small farm lending products,

regardless of lending volume.

Additionally, a large bank’s consumer

loans are currently considered at its

option or if these loans constitute a

substantial majority of the bank’s

business. There is not an established

threshold for this standard, and

examiner judgment is used to determine

whether consumer loans constitute a

substantial majority of a bank’s

business, which can be a source of

confusion among stakeholders.

92

In contrast, small banks are evaluated

on only those retail lending categories

that are considered major product lines.

Currently, there is no Regulation BB

definition of a major product line.

Instead, examiners select major product

lines for evaluation at small banks based

on a review of information, including

the bank’s business strategy and its

areas of expertise. Examiners may

evaluate all of a small bank’s consumer

loans taken together or select a category

of consumer lending (e.g., credit card,

motor vehicle) if those consumer loans

are deemed to constitute a major

product line.

1. Treatment of Home Mortgage, Small

Business, and Small Farm Loans

The Board proposes to use metrics to

evaluate CRA performance on home

mortgage, small business, and small

farm lending, given the availability of

appropriate public data for these

product lines. Under such an approach,

major product line designations for a

bank could vary across its assessment

areas. For example, a bank that is

primarily a home mortgage and small

business lender overall but specializes

in small farm lending in certain rural

assessment areas would have small farm

lending considered in those specific

assessment areas, but not in assessment

areas where the bank makes few or no

small farm loans.

For large banks, reviewing major

product lines at the assessment area

level for home mortgage, small business,

and small farm lending would

constitute a change compared to the

current approach that automatically

includes reviews of these product lines

in all of their assessment areas.

Adopting a major product line approach

for large banks would focus CRA

evaluations on their actual retail

lending, but would also eliminate

consideration of some lending that the

Board currently considers in large bank

examinations. For small banks, adopting

a major product line approach to home

mortgage, small business, and small

farm lending would be similar to the

standards in place today, although the

standards for determining major product

lines would be quantitatively defined to

ensure transparency and promote

certainty.

A benefit of evaluating all banks on

their major product lines is that this

approach could streamline evaluations

and focus on the retail lending activity

that has the biggest impact at each bank.

Although some may be concerned about

no longer including a review of home

mortgage or small business loans in

particular assessment areas where loan

volume is low, a large bank’s lower

volume lending is currently already

given less weight when evaluating a

bank’s retail lending performance. The

Board is considering a threshold of 15

percent of the dollar value of a bank’s

retail lending in individual assessment

areas for a major product line

designation for home mortgage, small

business, and small farm lending.

Specifically, retail product lines would

be evaluated using the metrics

discussed in Section V if they

constituted 15 percent or more of a of

the dollar value of a bank’s retail

lending in a particular assessment area

over the evaluation period.

Many stakeholders have supported

designating a major product line

standard for purposes of using metrics

to evaluate retail lending. Some

stakeholders have provided feedback

that a threshold of 15 percent of an

institution-level (not assessment area)

dollar volume of total retail loan

originations during the evaluation

period could be too high for large banks.

Some of these stakeholders have

suggested choosing major product lines

considering contextual information

about the bank, or the bank’s assessment

area(s), such as its market share within

the community. The approach discussed

above would select major product lines

at the assessment area level, and would

likewise take into account this kind of

local performance context information.

Request for Feedback:

Question 33. Should the Board

establish a major product line approach

with a 15 percent threshold in

individual assessment areas for home

mortgage, small business, and small

farm loans?

Question 34. Would it be more

appropriate to set a threshold for a

major product line determination based

on the lesser of: (1) The product line’s

share of the bank’s retail lending

activity; or (2) an absolute threshold?

2. Treatment of Consumer Loans

Consumer loan categories, as

currently defined in Regulation BB,

include motor vehicle, credit card, other

secured consumer loans, and other

unsecured consumer loans (e.g.,

education loans).

93

Consumer lending is

an important credit vehicle, and can

fulfill key needs for LMI borrowers;

however, it raises different

considerations in determining when a

bank is evaluated for CRA purposes

based on its consumer lending. If

households with urgent liquidity needs

are unable to access a credit card or

other consumer loan at a reasonable

rate, they may turn to more costly and

less sustainable forms of short-term

credit. For example, motor vehicle loans

can be especially important in areas

where public transportation is not

readily available and where jobs are

distant from where people live.

a. When To Evaluate Consumer Loans

Under CRA

Some stakeholders note the

importance of small dollar loans and

consumer lending to LMI borrowers,

while others argue against mandatory

inclusion of consumer lending, citing

the burden of originating and reporting

these loans. The Board proposes setting

clear quantitative standards to

determine whether to evaluate

consumer lending for purposes of CRA.

Specifically, the Board is considering

establishing a substantial majority

threshold, using measures based on the

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Federal Reserve Banks, ‘‘Small Business Credit

Survey: 2020 Report on Employer Firms’’ (Aug.

2020) https://www.fedsmallbusiness.org/

medialibrary/FedSmallBusiness/files/2020/2020-

sbcs-employer-firms-report.

95

See 12 CFR 228.22(b)(3)(ii).

96

The Call Report defines ‘‘loans to small

businesses’’ as loans with original amounts of $1

million or less that have been reported as ‘‘Loans

secured by nonfarm nonresidential properties.’’ It

defines ‘‘loans to small farms’’ as: (1) Loans with

original amounts of $500,000 or less that have been

reported as ‘‘Loans secured by farmland (including

farm residential and other improvements)’’; or (2)

Loans with original amounts of $500,000 or less

that have been reported as ‘‘Loans to finance

agricultural production and other loans to farmers.’’

See ‘‘Instructions for Preparation of Consolidated

Reports of Condition and Income (FFIEC 031, 032,

033, and 034), RC–C-Small Business and Small

Farm Loans, RC–C–37, https://www.ffiec.gov/PDF/

FFIEC_forms/FFIEC031_034inst_200006.pdf.

97

12 CFR 228.22(b)(3).

98

Threshold inflation adjustments are based on

2018 numbers from Bureau of Labor Statistics

Consumer Price Index conversion table and

recalibrated to December 1995=100 (Source: https://

www.bls.gov/cpi/research-series/home.htm).

99

Updating the small business loan and small

farm loan thresholds for inflation would decouple

them from Call Report data. Current Call Report

data collection would not capture any revisions to

these CRA loan thresholds.

number of consumer loans, the dollar

value of consumer loans, or a hybrid

approach combining both loan counts

and dollar values of consumer loans. A

benefit of using a loan count standard is

that it would be the clearest indicator of

how many consumers receive consumer

loans from a specific bank or how many

consumers use particular consumer

lending products.

Alternatively, using the dollar value

of lending to designate a major product

line threshold for consumer loans

would ensure that consumer products

are selected for evaluation in a manner

that is consistent across retail products,

as well as across examinations. Using

the dollar amount of loans to determine

major product line designations would

include consumer loans only when

quantitative standards defined in the

regulation are met. For example,

consumer lending could be evaluated if

the dollar amount of consumer loans

accounted for 25 percent of a bank’s

overall activity in an assessment area or,

alternatively, 15 percent of a bank’s

lending in a particular consumer loan

category.

b. Evaluating Consumer Loans as an

Entire Product Line or at the Category

Level

The Board proposes applying the

metrics-based approach to the entire

product line of home mortgage loans,

small business loans, and small farm

loans, while evaluating consumer loans

at the level of separate consumer loan

categories (e.g., motor vehicle, credit

card, other secured consumer loans, and

other unsecured consumer loans).

Evaluating separate consumer loan

categories would recognize the different

characteristics, purposes, average loan

amounts, and uses of motor vehicle

loans, credit cards, and other secured

and unsecured consumer loans.

Request for Feedback:

Question 35. What standard should be

used to determine the evaluation of

consumer loans: (1) A substantial

majority standard based on the number

of loans, dollar amount of loans, or a

combination of the two; or (2) a major

product line designation based on the

dollar volume of consumer lending?

Question 36. Should consumer loans

be evaluated as a single aggregate

product line or do the different

characteristics, purposes, average loan

amounts, and uses of the consumer loan

categories (e.g., motor vehicle loans,

credit cards) merit a separate evaluation

for each?

B. Small Business and Small Farm

Thresholds

The Board recognizes the importance

of small business and small farm loans

as essential financial services,

particularly in underserved

communities. Smaller revenue firms

(with gross annual revenues of $1

million or less) frequently have small

dollar financing needs and typically

have distinct credit challenges, but may

not meet traditional bank underwriting

criteria. Additionally, when applying

for credit, small firms in general seek

smaller loan amounts. According to the

Federal Reserve’s 2020 Small Business

Credit Survey, nearly 60 percent of

businesses that sought credit were

seeking $100,000 or less in financing,

and one in five sought less than

$25,000.

94

The Board is considering whether the

existing CRA small business and small

farm loan definitions are appropriate.

The Board also seeks comment on

whether the asset-size thresholds for

determining whether these loans are

helping to meet the needs of smaller

revenue businesses and smaller revenue

farms should be updated to reflect

changes to the industry since the

thresholds were set in 1995.

95

In

considering updates to the thresholds,

the Board seeks to retain the nexus of

the small business and small farm

definition with smaller small businesses

and small farms that often have the

greatest unmet credit needs.

Currently, in order to qualify as a

small business or small farm loan, the

loan amount must not exceed a

specified dollar threshold. Specifically,

based on the instructions for the Reports

of Condition and Income (Call Reports),

loans to small businesses are defined as

loans with origination amounts of $1

million or less and loans to small farms

are defined as loans with origination

amounts of $500,000 or less.

96

Regarding the gross annual revenues

standards, Regulation BB’s borrower

characteristics criteria, as reflected in

the large bank lending test, consider

small business loans or small farm loans

that have gross annual revenues of $1

million or less.

97

The Board is considering updating the

thresholds for both loan size and gross

annual revenue. First, the Board

requests feedback on adjusting the loan

size thresholds based on inflation,

which would equal approximately $1.65

million dollars for small business loans

and approximately $800,000 dollars for

small farm loans.

98

Updating these

thresholds for inflation would adjust

eligibility so that the small business and

small farm loan thresholds would reflect

the current value of the dollar relative

to the last update. Another option

would be to maintain the loan

thresholds at their current levels as an

incentive for banks to meet smaller

dollar financing needs.

Input received from industry

stakeholders generally supports raising

the thresholds from the current levels,

with some suggesting an adjustment to

the loan thresholds to reflect inflation or

raising them to $2 million. Community

organizations generally support either

maintaining the current loan thresholds

or adjusting them only to reflect

inflation.

A challenge to determining the

appropriate updated loan size

thresholds, if any, is a lack of available

data on business and farm loans. As

noted above, currently the CRA small

business and small farm loan thresholds

correlate with Call Report

requirements.

99

Constraints on data

availability raise the question of

whether the small business and small

farm loan thresholds should be raised

without an ability to capture new

information related to revised standards.

The Board is considering whether to

continue to define CRA small business

and small farm loans based on the Call

Report definitions or, alternatively,

whether Regulation BB should define

small business and small farm loan

amount thresholds independently.

Defining loan amount thresholds

independently for CRA purposes may

allow for greater flexibility and

precision in determining threshold

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Threshold inflation adjustments are based on

2018 numbers from Bureau of Labor Statistics

Consumer Price Index conversion table and

recalibrated to December 1995=100, https://

www.bls.gov/cpi/research-series/home.htm.

101

In 2017, over 75 percent of HMDA loans

purchased by commercial banks were securitized or

sold to the government-sponsored enterprises

within the same calendar year.

102

In this practice, loans to LMI borrowers are

purchased and sold repeatedly by different banks,

with the possibility of each bank receiving CRA

credit at an equivalent level to the banks that

originated the loans.

103

See 18 U.S.C. 1151. Indian Country would be

defined as federal Native Areas including Federally

Designated Indian Reservations, Off Reservation

Trust Lands, Alaskan Native Village Statistical

Areas, and Hawaiian Home Lands.

levels, but could require that Regulation

BB incorporate a new mechanism for

collecting related data.

The Board is also considering

updating the gross annual revenue

thresholds used for the borrower

distribution analysis of small businesses

and small farms. Similar to the loan size

thresholds, one option would be to

increase these thresholds to reflect

inflation. Adjusting the $1 million gross

annual revenue thresholds based on

inflation would result in revised

thresholds today of approximately $1.65

million.

100

A related question is whether

adjusted small business and small farm

loan size and gross annual revenue

thresholds should also be regularly

adjusted for inflation moving forward,

such as at three-year or five-year

intervals. A benefit of regularly

adjusting thresholds is ensuring that

similar ranges of activities would

continue to qualify over time. However,

one possible drawback to regular

adjustments is additional burden and

complexity for stakeholders.

Request for Feedback:

Question 37. Should the Board

continue to define small business and

small farm loans based on the Call

Report definitions, or should Regulation

BB define the small business and small

farm loan thresholds independently?

Should the Board likewise adjust the

small business and small farm gross

annual revenues thresholds? Should any

or all of these thresholds be regularly

revised to account for inflation? If so, at

what intervals?

C. Treatment of Purchased Loans

The Board is reviewing whether to

treat non-securitized home mortgage

loan purchases equivalently with home

mortgage originations, particularly in

conjunction with a metrics-based

approach in the Retail Lending

Subtest.

101

Currently, purchased loans

receive the same CRA consideration as

loan originations, consistent with their

treatment on the Call Report. The

market for purchased loans is more

concentrated than that for loan

originations, with 15 banks accounting

for approximately 90 percent of total

loan purchases reported in both HMDA

and CRA data. Although the market for

purchased loans is concentrated, these

loans can be viewed as providing

liquidity by freeing up capital so that

retail banks and other lenders, such as

CDFIs, can originate additional loans to

LMI individuals and in LMI areas.

Some stakeholders support

continuing to provide equivalent

consideration for purchases of home

mortgage loans, noting that such

purchases extend the capacity of

lenders, including CDFIs, to make

needed LMI loans. Some stakeholders

have additionally noted that loan

purchases are an important tool for

banks that do not have the on-the-

ground capabilities to originate loans in

certain markets in which they seek

business opportunities. However, other

stakeholders have expressed that

purchased loans and originations

should not receive equal consideration

because of the lower level of effort

required for loan purchases relative to

loan originations, which require

marketing, outreach, and business

development resources that are not

necessary for purchased loans.

Moreover, other stakeholders have

indicated that some banks solely

purchase loans from other institutions

that have previously purchased those

loans, in order to garner CRA credit—a

practice often described as ‘‘loan

churning.’’

102

These stakeholders note

that such banks are not using the

liquidity generated to benefit either the

originating or purchasing bank’s

community.

Although there are multiple reasons

for banks to purchase loans, Board

analysis indicates some CRA-motivated

repeat purchases of home mortgage

loans may be occurring. A review of

2017 HMDA data found that LMI loans

are over five times as likely to be

purchased within a year as other home

mortgage loans. This analysis finds that

0.6 percent of home mortgage loans to

non-LMI borrowers purchased by

commercial banks were sold to another

commercial bank within the same year,

whereas the share was 3.3 percent for

LMI borrower loans. At the same time,

this analysis indicates that including

purchased home mortgage loans in CRA

evaluations may not have a significant

impact on performance outcomes.

The Board is considering including

only home mortgage loans purchased

directly from an originating lender (or

affiliate) in CRA evaluations. This

approach strikes a balance between

recognizing the importance of first-time

purchases to banks that rely on other

lenders to directly provide liquidity in

order to originate new loans and

addressing the concern about loan

churning.

An alternative option the Board is

considering would be an additional

review to help exclude loan churning

from the above-referenced retail lending

screen and distribution metrics.

Although, generally, home mortgage

loan purchases would remain eligible

on par with originations, purchased

loans added solely for purpose of

inflating CRA lending performance

would not. This option would minimize

burden on banks by allowing them to

continue their current data collection

and reporting processes, but introduce a

deterrent to prevent the repeat selling

and purchasing of loans solely for the

purposes of garnering consideration in

CRA evaluations.

Request for Feedback:

Question 38. Should the Board

provide CRA credit only for non-

securitized home mortgage loans

purchased directly from an originating

lender (or affiliate) in CRA

examinations? Alternatively, should the

Board continue to value home mortgage

loan purchases on par with loan

originations but impose an additional

level of review to discourage loan

churning?

Question 39. Are there other

alternatives that would promote

liquidity by freeing up capital so that

banks and other lenders, such as CDFIs,

can make additional home mortgage

loans to LMI individuals?

D. Broadening Consideration for Retail

Activities in Indian Country

The Board is proposing broadening

consideration for retail lending

activities conducted in Indian

Country.

103

These activities would be

reviewed qualitatively and in

conjunction with the proposed Retail

Lending Subtest performance ranges

approach described previously. Public

feedback received from both community

organizations and industry is generally

supportive of expanding eligibility for

retail CRA activities in Indian Country

due to high poverty rates and relative

lack of banking services. The Board

believes that expanding eligibility may

encourage greater retail lending activity

in areas long identified as having unmet

credit needs.

Currently, a retail activity located

within Indian Country must also satisfy

additional eligibility criteria under

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Options for defining deposits, as well as

potential data sources, are discussed in Section

XI.B.

105

See Q&A §ll.26(d).

106

12 CFR 228.25(c) and 12 CFR 228.26(c).

107

12 CFR 228.22 and 12 CFR 228.23.

108

See CA 14–2 (‘‘Revised Interagency Large

Institution CRA Examination Procedures and

Consolidation of Interagency CRA Examination

Procedures and Supporting Materials’’), p. 21 (Apr.

18, 2014), https://www.federalreserve.gov/

supervisionreg/caletters/CA_14-2_attachment_1_

Revised_Large_Institution_CRA_Examination_

Procedures.pdf. See also Q&A §ll.12(h)—6.

(‘‘The institution’s assessment area(s) need not

receive an immediate or direct benefit from the

institution’s participation in the organization or

activity, provided that the purpose, mandate, or

function of the organization or activity includes

serving geographies or individuals located within

the institution’s assessment area(s).’’).

Regulation BB to qualify for

consideration. For example, such loans

must be within a bank’s assessment

area. Under the proposed approach, the

qualitative aspects of a bank’s

performance would include a review of

any retail activity conducted in Indian

Country, including loans to low-,

moderate- and middle-income

borrowers. The Board’s proposed

approach would make retail activities in

Indian Country located both inside and

outside of a bank’s assessment area

eligible for CRA consideration, as long

as a bank satisfies the needs of its own

assessment area(s). Activities outside of

a bank’s assessment area(s) would be

evaluated qualitatively, and could be

considered as a possible enhancement

to a bank’s Retail Test institution rating,

as discussed in Section X.

Request for Feedback:

Question 40. Should CRA

consideration be given for retail lending

activities conducted within Indian

Country regardless of whether those

activities are located in the bank’s

assessment area(s)?

Question 41. Should all retail lending

activities in Indian Country be eligible

for consideration in the Retail Lending

Subtest or should there be limitations or

exclusions for certain retail activities?

VII. Community Development Test:

Evaluation of Community Development

Financing and Community

Development Services Performance

The Board is proposing a new

Community Development Test that

would include a Community

Development Financing Subtest and a

Community Development Services

Subtest. The Board proposes that the

Community Development Test would

apply only to large retail banks and

wholesale and limited purpose banks in

order to tailor performance expectations

by bank size and business model. Banks

evaluated under the Community

Development Test would receive

separate Community Development

Financing Subtest and Community

Development Services Subtest

conclusions in each assessment area.

A. Community Development Financing

Subtest Evaluation Approach

In order to provide clear and

consistent incentives for effective

community development financing, the

Board is considering a quantitative

assessment of community development

financing activities. The Board is

proposing using a ‘‘community

development financing metric’’ that

measures the ratio of the dollar amount

of a bank’s qualifying community

development financing activities

compared to its deposits

104

within each

assessment area. The Board is also

considering how to use local and

national data to establish benchmarks

for the community development

financing metric at the assessment area

level. Wholesale and limited purpose

banks, whose business models generally

do not involve retail deposit accounts,

would be evaluated under separate

procedures that would not involve retail

deposits.

1. Current Approach for Evaluating

Community Development Loans and

Qualified Investments

Under current CRA standards,

community development financing

activities are considered differently

based on the asset size and business

model of a bank. For small retail banks,

community development investments

and services are reviewed only at a

bank’s option for consideration for an

‘‘outstanding’’ rating for the institution

overall.

105

For intermediate small retail

banks and wholesale and limited

purpose banks, community

development loans, qualified

investments, and community

development services are considered

together under one community

development test.

106

For large retail banks, community

development loans are considered as

part of the lending test together with

retail loans, while qualified investments

are considered separately in the

investment test.

107

A large retail bank

receives consideration for both the

number and dollar amount of

community development loans

originated and qualified investments

made during the review period, as well

as the remaining book value of qualified

investments made during a prior review

period, but not of community

development loans made during a prior

review period. Examiners also consider

qualitative factors including the

innovativeness or complexity of these

activities, how responsive the bank has

been to opportunities in its assessment

area(s), and the degree of leadership a

bank exhibits through its activities. The

evaluation of qualitative factors is

currently based on any information that

a bank provides on the impact of its

activities, along with an examiner

review of performance context, which

includes community needs and

opportunities.

Under current guidance, a bank

receives consideration for loans and

investments that serve the bank’s

assessment area(s) when evaluating

assessment area performance.

108

Activities in broader statewide or

regional areas that include the bank’s

assessment area(s) may be considered in

evaluating performance for an

assessment area, state, multistate MSA,

or the institution overall, depending on

the scope of the activities and whether

they are shown to benefit or be targeted

to the bank’s assessment area(s). Broader

statewide and regional activities that do

not serve a bank’s assessment area(s) are

considered at the state or institution

level only if the bank is first determined

to have been responsive to the credit

and community development needs

within its assessment areas.

The current geographic treatment of

community development activities

recognizes that many activities have a

geographic scope that extends beyond a

single assessment area, such as a

statewide or regional fund for affordable

housing. Broader regional and statewide

activities are an important source of

community development capital in

many communities, especially in places

where strictly local community

development organizations may lack the

capacity to absorb large loans and

investments.

2. Stakeholder Feedback on Evaluating

Community Development Financing

Stakeholders believe that evaluations

of community development loans and

investments could be improved by

encouraging patient capital; increasing

the clarity, consistency, and

transparency of performance

expectations; and by providing stronger

incentives to serve underserved areas.

Some stakeholders have noted that the

current approach of considering

community development loans and

qualified investments under separate

tests may inadvertently distort the

choice of whether to make a loan or

investment as well as the choice of term

of a loan. A large bank seeking to

improve its investment test performance

may prefer to structure a community

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CA Letter 14–2, p. 9.

110

See Q&A §ll.21(a)—2.

development financing activity as an

investment for the purpose of receiving

CRA credit, even if a loan would

otherwise be preferable for the bank and

the project. In addition, the current

practice of counting community

development loans originated during

the review period, but not those held on

balance sheet from prior review periods,

is inconsistent with the treatment of

qualifying investments, and could

discourage patient longer-term loans

that often yield the most enduring

benefits for communities.

Stakeholders have also pointed to a

lack of consistency and transparency in

the quantitative evaluation of

community development financing

activities. Current examination

procedures consider the number and

dollar amount of community

development loans and qualified

investments, but do not provide

guidance on suitable benchmarks or

thresholds against which to evaluate

this performance.

109

As a result,

examiners may measure the volume of

community development loans and

investments differently, and it can be

challenging to know what level of a

bank’s activities corresponds to a certain

conclusion. In addition, both industry

and community stakeholders have noted

community development activities may

benefit larger statewide or regional areas

that do not align with a bank’s

assessment area(s), and stakeholders

have expressed concerns that these

activities are not always treated

consistently in the evaluation process.

Stakeholders have also emphasized

that CRA should encourage more

community development activities in

areas with significant unmet credit

needs, such as rural communities,

communities that lack institutional

capacity for community development,

and areas with few bank branches.

Stakeholders have noted that there is

limited publicly available data on the

location and type of community

development financing activities.

Currently, only community

development lending data are reported,

and only at an aggregate level for a bank.

Data on qualifying investments are

included inconsistently in performance

evaluations, and with varying levels of

detail. The lack of available data makes

it difficult to know which activities

banks are conducting to meet needs in

different communities. Finally, some

stakeholders have noted that the

qualitative aspects of community

development activities are not

considered consistently.

Existing guidance states that

examiners can weigh community

development activities differently based

on the responsiveness, innovativeness,

and complexity of the activities.

110

There are no established standards for

what should be considered to determine

the responsiveness of activities, or clear

examination procedures for how

community development activities

should be reviewed relative to

performance context. Information

regarding the impact of activities on

LMI communities, such as the number

of housing units built, is not routinely

available to examiners.

3. Combined Consideration of

Community Development Loans and

Investments

The Board proposes evaluating

community development loans and

qualified investments together under a

new Community Development

Financing Subtest. The subtest would

evaluate new loans and investments

made or originated during each year of

an evaluation period, as well as loans

and investments made or originated in

a prior year and held on balance sheet.

Evaluating these activities under one

subtest would give banks more

flexibility to provide the type of

financing—loans or investments—most

appropriate to support their local

communities without concern about

meeting different evaluation criteria.

Additionally, capturing the book value

of qualifying community development

loans that remain on the balance sheet

from prior evaluation periods, as

currently happens with qualifying

investments, would more effectively

encourage patient capital. These

changes would allow banks to receive

CRA credit for extending and

maintaining long-term financing

activities, regardless of whether they are

financed by debt or equity. However,

some stakeholders worry that combining

loans and investments could reduce

direct incentives to make Low-Income

Housing Tax Credit (LIHTC)

investments.

Request for Feedback:

Question 42. Should the Board

combine community development loans

and investments under one subtest?

Would the proposed approach provide

incentives for stronger and more

effective community development

financing?

4. Community Development Financing

Metric

The Board is proposing a community

development financing metric that

would form the core of assessment area

Community Development Financing

Subtest conclusions. Only qualifying

activities and deposits that are within

an assessment area would be included

in calculating a bank’s community

development financing metric for that

assessment area, in order to precisely

measure how banks are meeting the

needs of their local communities. At the

same time, to emphasize the importance

of community development activities in

broader statewide and regional areas,

the Board would consider all qualifying

activities that are contained within an

eligible state, territory, or region in

which a bank has an assessment area, as

discussed in Section VIII, and would

factor these activities into the state,

multistate MSA, or institution

conclusion or rating, respectively, as

discussed in Section X. While the

treatment of these broader activities in

state, multistate MSA, and institution

ratings would no longer depend on a

bank’s performance within an

assessment area, the community

development financing metric creates a

strong incentive for banks to maintain a

focus on serving local communities

because it includes only those activities

within a bank’s assessment area(s).

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The Board would calculate the assessment

area average annual value of new loan originations,

investments, and purchases by adding together the

initial origination or purchase value of all

qualifying activities during the examination period

and dividing that result by the number of years in

the examination period. The Board would also

calculate the assessment area average annual value

of qualifying activities remaining on the bank’s

balance sheet from a prior year by adding together

the remaining balance sheet value of qualifying

activities that were originated or purchased in a

prior year at the end of each calendar year of the

examination period and dividing that result by the

number of years in the examination period. The

numerator is the sum of these two annual averages.

The denominator is the average annual value of a

bank’s deposit holdings within its assessment area.

112

FDIC SOD data includes deposits pertaining

to: 1. Individuals, partnerships, and corporations. 2.

The U.S. Government. 3. States and political

subdivisions in the United States. 4. Commercial

banks and other depository institutions in the

United States. 5. Banks in foreign countries. 6.

Foreign governments and official institutions

(including foreign central banks). See FFIEC,

‘‘Consolidated Reports of Condition and Income for

a Bank with Domestic and Foreign Offices—FFIEC

031,’’ Schedule RC–E, Deposit Liabilities, p. 34,

https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_

202006_f.pdf.

The metric would be the ratio of a

retail bank’s community development

financing dollars (the numerator)

relative to deposits (the denominator)

within an assessment area.

111

For

example, if a bank has drawn $1 million

in deposits from an assessment area and

has conducted $20,000 in qualifying

community development financing

activities in that assessment area, its

community development financing

metric would be 2.0 percent.

The numerator of the community

development financing metric would be

a bank’s average annual dollars of

community development financing

activity loaned or invested in a given

assessment area. This would include the

value of community development loans

and qualifying investments originated or

purchased in each year of the evaluation

period, as well as the value of

community development loans and

qualifying investments originated or

purchased in a prior year and remaining

on a bank’s balance sheet. For the

denominator, the Board proposes that a

bank’s annual average dollar amount of

deposits within a given assessment area

could be the most appropriate measure

for a bank’s financial capacity, and it

aligns with the intent of CRA that a

bank meet the credit needs in the

communities where it conducts

business. The Board is considering two

options for how to construct this

denominator for large retail banks. The

first option would use FDIC SOD data

to measure the dollar amount of

deposits assigned to branches within a

bank’s assessment area.

112

The second

option would use the dollar amount of

retail domestic deposits held on behalf

of depositors residing within each

assessment area.

Some stakeholders have expressed

concerns that a dollar-based metric

would not adequately measure impact

and responsiveness, and that it may

provide incentives for banks to seek

larger dollar activities that may not be

as responsive to community needs as

smaller transactions that may require

the same amount, or more, of due

diligence and preparation on the part of

the bank. The Board has evaluated

different options for metrics in order to

maintain an emphasis on LMI

individuals and communities, such as

using the number of community

development financing activities rather

than the associated dollar amount.

However, the Board determined that the

overall dollar amount would more

appropriately reflect the potential

impact and scale of a bank’s community

development activities. This also would

be more consistent with the current

evaluation approach. Additionally, the

Board proposes to complement the use

of the community development

financing metric with a qualitative

review of responsiveness and impact,

which would help give greater

consideration to highly impactful, small

dollar activities than the metric alone

would reflect.

The Board is considering how to use

metrics to evaluate wholesale and

limited purpose banks under the

Community Development Financing

Subtest. The deposit-based denominator

of the community development

financing metric that the Board is

considering for large retail banks would

not be appropriate for wholesale and

limited purpose banks, which generally

do not offer deposit accounts as part of

their business model. There are two

alternatives that the Board has

considered: the community

development financing metric could be

modified to use assets as the

denominator instead of deposits or the

metric could be based on the amount of

qualifying loans and investments

without scaling to deposits or assets.

Under either approach, examiners

would also consider the impact and

responsiveness of activities and other

performance context factors.

Request for Feedback:

Question 43. For large retail banks,

should the Board use the ratio of dollars

of community development financing

activities to deposits to measure its level

of community development financing

activity relative to its capacity to lend

and invest within an assessment area?

Are there readily available alternative

data sources that could measure a

bank’s capacity to finance community

development?

Question 44. For wholesale and

limited purpose banks, is there an

appropriate measure of financial

capacity for these banks, as an

alternative to using deposits?

5. Benchmarks for the Community

Development Financing Metric

The Board is proposing to establish

one local and one national benchmark

tailored to each assessment area that

would serve as appropriate comparators

for the community development

financing metric. Both of these

benchmarks would be based on the

dollar amount of community

development financing and the dollar

amount of deposits provided by all large

retail banks at the corresponding

geographic level. These benchmarks

would be used by examiners to inform

a Community Development Financing

Subtest conclusion for large retail banks

in each assessment area.

Local Benchmark. The numerator for

the local benchmark would be the

annual average of the total dollar

amount of all large banks’ qualifying

community development financing

activities in the assessment area. The

denominator for the local benchmark

would be the annual average of the total

dollar amount of all deposits held by

large banks in the assessment area.

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The Board would define ‘‘metropolitan areas’’

as any county or county equivalent that is part of

an MSA, and ‘‘nonmetropolitan areas’’ as any

county or county equivalent that is either part of a

micropolitan statistical area or falls outside of an

MSA or a micropolitan statistical area, based on

U.S. Census designations.

114

The analysis used a sample of 5,735

assessment areas from large retail bank performance

evaluation records from 2005 to 2017, which note

the dollar amount of current period community

development loan originations as well as current

period and prior period qualifying investments in

each assessment area. The total dollar amount of

activities was divided by the length in years of each

examination review period, to produce an annual

average for each assessment area evaluation. FDIC

SOD data was used to identify the dollar amount

of deposits associated with the corresponding

bank’s branches in the assessment area. The

aggregate ratio of annualized dollars of community

development activities to dollars of deposits was

computed separately for all metropolitan

assessment areas and all nonmetropolitan

assessment areas in the sample, respectively. Under

this analysis, the metropolitan ratio was 1.4

percent, and the nonmetropolitan ratio was 0.9

percent, based on examinations from 2014 to 2017.

The metropolitan ratio remained significantly larger

than the nonmetropolitan ratio when limiting the

sample to only full-scope examinations, across

different periods of the sample, and when

computing the median ratio of all examinations,

rather than a mean.

Given the high level of variation in

community development financing

activities across different communities,

the Board believes that the local

benchmark would enable the

community development financing

metric to be tailored to local conditions.

This would control for factors such as

economic and demographic differences,

the availability and capacity of

community development financing

partners, the stage of the local business

cycle, and the presence of other

financial institutions, which contribute

to differences in the level of community

development activity across

communities and within a community

across time.

National Benchmark. The Board is

considering developing benchmarks for,

respectively, all metropolitan areas and

all nonmetropolitan areas nationally.

113

One of these national benchmarks

would be applied to each assessment

area, depending on whether the

assessment area was located in a

metropolitan area or a nonmetropolitan

area. Based on a Board analysis of

performance evaluations from the

Board’s CRA Analytics Data Tables and

existing FDIC SOD information, the

ratio of banks’ community development

loans and qualifying investments to

deposits is significantly higher for

metropolitan assessment areas relative

to nonmetropolitan assessment areas.

114

Setting the national benchmark

separately for metropolitan and

nonmetropolitan areas would help

examiners account for this difference.

The numerator for the national

benchmarks would be the annual

average of the total dollar amount of all

large retail banks’ qualifying community

development financing activities (in

either metropolitan or nonmetropolitan

areas, depending on the assessment

area), and the denominator would be the

dollar amount of all deposits (again,

either in metropolitan or

nonmetropolitan areas).

In addition to accounting for

differences across assessment areas, the

use of separate benchmarks calibrated to

local and national conditions could help

account for factors that vary over time,

including local and national business

cycles. For example, a negative shock to

a local economy could adversely affect

the capacity of banks to lend and invest

within an assessment area, such that the

local benchmark would adjust

downward. Similarly, a change in

economic conditions that impacts the

amount of large bank community

development activities nationally would

be reflected in the national benchmarks.

Additionally, the formulae, data

sources, and historic data for calculating

the benchmarks could be made publicly

available in simple dashboards and

updated regularly, in order to provide

the most transparency and clarity to

banks to allow them, and the public, to

track their performance.

The Board recognizes the use of local

and national benchmarks could require

enhanced data collection and reporting

procedures, discussed further in Section

XI. In addition, the typical level of

community development financing

varies widely across assessment areas,

which means that the local benchmark

may vary widely as well. Although this

variation would reflect past community

development financing patterns, it

could result in performance standards

that are very low in some assessment

areas and very high in others,

depending on how standards are

calibrated. In contrast, national

benchmarks based on metropolitan and

nonmetropolitan areas would be equal

for all metropolitan and

nonmetropolitan assessment areas,

respectively. The national benchmarks

could be much higher than the typical

level of activity in some areas and much

lower than the typical level of activity

in other areas.

Request for Feedback:

Question 45. Should the Board use

local and national benchmarks in

evaluating large bank community

development financing performance to

account for differences in community

development needs and opportunities

across assessment areas and over time?

6. Establishing Thresholds for the

Community Development Financing

Metric

This section discusses potential ways

of setting thresholds for the community

development financing metric that are

derived from the local and national

benchmarks, but it does not offer

specific threshold levels based on the

local and national benchmarks. The

Board believes that enhanced data

would be important for evaluating

where to set the thresholds. This section

also discusses two different options that

could leverage thresholds based on the

local and national benchmarks.

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The use of local and national benchmarks

would reflect the level of community development

financing opportunities in each assessment area,

while the examiners’ review of performance context

factors would emphasize a bank’s capacity and

constraints.

a. Setting Thresholds Using Local and

National Benchmarks

Establishing thresholds for the

community development financing

metric would have several advantages.

First, the formulae, data sources, and

thresholds themselves could be shared

publicly and updated on an annual

basis for each assessment area so that

the expected level of community

development financing activity is

transparent and predictable. Second,

such thresholds would create a more

consistent and predictable evaluation

process. Third, the quantitative

thresholds could be set dynamically,

using the local and national

benchmarks, to account for varying

market conditions across assessment

areas, in a way that makes them adjust

automatically to differences in local

community development activity and

economic cycles.

The Board proposes establishing a

threshold for each assessment area that

would be the value of the community

development financing metric

consistent with at least a ‘‘satisfactory’’

conclusion. For example, if a bank had

a community development financing

metric of 3.0 percent in an assessment

area, and the threshold for

‘‘satisfactory’’ performance was 1.5

percent, then examiners could interpret

the value of the bank’s metric as

indicative of at least a ‘‘satisfactory’’

conclusion on the Community

Development Financing Subtest in this

assessment area.

The Board has considered whether

this threshold should be based solely on

the local benchmark, the greater of the

local benchmark and the relevant

national benchmark, or another method

of combining the two benchmarks. More

precise and comprehensive data would

aid in analyzing these and other

options. While the Board’s CRA

Analytics Data Tables provide

information from a sample of

performance evaluations, they include

little or no information on prior period

community development loans, on

financing activities in broader statewide

and regional areas, or on activities in

many smaller cities and rural areas.

Calibrating the thresholds appropriately

based on thorough data and analysis is

essential to developing an approach that

neither sets performance standards too

low relative to current levels of

activities in some assessment areas nor

unrealistically high in others.

b. Using Thresholds To Evaluate

Community Development Financing

Performance

The Board is considering how to use

the national and local community

development financing thresholds for

purposes of granting a presumptive

conclusion of ‘‘satisfactory’’

performance, similar to the Retail

Lending Subtest proposed in Section V.

Under a presumption approach, if a

bank’s community development

financing metric surpasses a certain

threshold, the bank could be presumed

to have achieved at least ‘‘satisfactory’’

performance. Examiners would evaluate

qualitative factors to help determine

whether a bank that surpasses the

threshold should receive a

‘‘satisfactory’’ or ‘‘outstanding’’

conclusion, or to help determine the

appropriate conclusion for a bank that

does not meet the threshold, which

could be any conclusion. This approach

would provide banks and communities

with greater clarity and certainty

regarding the evaluation criteria and

expectations, and would decrease the

role of examiner discretion. However, in

light of initial data limitations, it might

be necessary at least initially to treat the

thresholds as a general guideline to help

evaluate a bank’s community

development financing metric rather

than creating a presumption of

‘‘satisfactory.’’ Under this gradated

approach, surpassing a threshold would

be taken into consideration, but would

not initially grant a presumption of a

specific conclusion. This gradated

approach would start with a more

incremental change from the current

evaluation approach until more data

permitted a presumption approach. The

addition of a quantitative benchmark

may provide banks and communities

with somewhat more certainty regarding

performance expectations relative to the

current approach, which does not have

any consistent quantitative thresholds.

At the same time, stopping short of

using the thresholds to grant a

presumption of satisfactory could be

beneficial in cases where the dollar

amount of a bank’s activities is large,

but the activities are not determined to

be particularly responsive or impactful.

In such cases, examiners may determine

that a bank may not merit a conclusion

of ‘‘satisfactory’’ performance on the

Community Development Financing

Subtest, even if it has surpassed a

quantitative threshold.

Under either approach, a bank that

does not surpass a quantitative

threshold reflecting ‘‘satisfactory’’

performance may still be assigned a

‘‘satisfactory’’ or even ‘‘outstanding’’

conclusion based on an examiner’s

review of performance context factors

and a detailed review of the banks

activities.

115

This framework could help

examiners account for variations in the

types of community development

activities that banks engage in.

Request for Feedback:

Question 46. How should thresholds

for the community development

financing metric be calibrated to local

conditions? What additional analysis

should the Board conduct to set

thresholds for the community

development financing metric using the

local and national benchmarks? How

should those thresholds be used in

determining conclusions for the

Community Development Financing

Subtest?

7. Qualitative Considerations Within the

Community Development Financing

Subtest Framework

The Board believes that a revised

evaluation framework for community

development loans and qualified

investments should incorporate

performance context and other

qualitative factors into the evaluation

process, in a way that is transparent and

consistent. Banks, examiners, and the

public should have clarity regarding

how especially impactful activities,

such as a significant capital investment

in an MDI, are factored in to a bank’s

performance conclusion on the

Community Development Financing

Subtest. In addition, impactful smaller

dollar activities, including qualifying

contributions, may have little impact on

a bank’s community development

financing metric and would need

qualitative consideration in order to be

adequately reflected in a bank’s

performance conclusions and ratings.

Performance context factors would

continue to play an important role in

identifying the unique community

development needs of each assessment

area, which would help inform

examiners’ evaluation of the impact and

responsiveness of a bank’s activities.

Activity-based Multipliers. The Board

has considered the use of multipliers to

weight certain categories of lending and

investment activities differentially in

calculating the community development

financing metric, to help give greater

weight to activities that are considered

by many stakeholders as especially

impactful and responsive. However, the

impact and responsiveness of particular

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See Q&A §ll.12(i)—3.

117

See Q&A §ll.12(i)—1.

118

12 CFR 228.25(c), 12 CFR 228.26(c); Q&A

§ll.26(d).

119

See 12 CFR 228.24(e).

120

Q&A §ll.24(e)—2.

community development financing

activities can vary considerably, which

could not be captured using uniform

weights. Moreover, the calibration of

appropriate weights would require

developing robust empirical

measurements of the community

development impact associated with

different types of activities.

Impact Scores. Instead, the Board is

proposing the use of ‘‘impact scores.’’

Examiners would assign an impact score

to each bank community development

financing activity based on their

assessment of its impact locally that

could range from 1–3, with 3 being the

highest. This approach would build on

the current evaluation approach, in

which banks submit data to demonstrate

that their activities have a primary

purpose consistent with the definition

of community development and have

the option to provide information to

describe the qualitative aspects of

activities, such as the number of

housing units developed or the number

of jobs created. Examiners could use

bank-provided information along with a

review of performance context to

determine an impact score for a bank’s

community development activities in an

assessment area. All Community

Development Financing Subtest

conclusions could include a statement

about both the community development

financing metric and the impact score,

which could be used to adjust the

bank’s performance conclusion relative

to the quantitative assessment. This

approach would increase the

transparency of the CRA evaluation

process by making more information

available to banks and communities

regarding the consideration of

qualitative factors in determining

assessment area conclusions.

Supplementary Metrics. The Board is

also considering the use of

supplementary metrics to provide

greater transparency and consistency.

For instance, the Board could provide

examiners with a series of data points,

including the percentage and dollar

amount of the bank’s total qualifying

community development financing

activities that are loans, investments,

and contributions, respectively, which

would help to illustrate the composition

of the bank’s activities and how

different financing vehicles were used

to respond to community needs. These

supplementary metrics would be

consistent with the current approach of

considering investment types differently

and evaluating contributions separately

from other qualifying investments. The

supplementary metrics could be

included in performance evaluations for

purposes of providing more

transparency to help stakeholders better

understand how well banks are

leveraging their resources to meet the

needs of local communities. However,

the Board is mindful of potential data

burden that supplementary metrics

could entail for banks, and would seek

to minimize the need for enhanced data

collection or reporting to create these

metrics.

Request for Feedback:

Question 47. Should the Board use

impact scores for qualitative

considerations in the Community

Development Financing Subtest? What

supplementary metrics would help

examiners evaluate the impact and

responsiveness of community

development financing activities?

B. Community Development Services

Subtest Evaluation Approach

The Board is proposing a new

Community Development Services

Subtest within the Community

Development Test. Separately assessing

and assigning a Community

Development Services Subtest

conclusion would focus a bank’s

attention on these services and

underscore their critical importance for

fostering partnerships among different

stakeholders, building capacity, and

creating the conditions for effective

community development, including in

rural areas. In developing a revised

framework, the Board anticipates that

the evaluation of community

development services would be

primarily qualitative, but the Board is

also exploring several options for

quantitative measures that could

supplement a qualitative approach.

1. Current Structure for Evaluating

Community Development Services and

Stakeholder Feedback

Community development services

generally include activities such as

service on boards of directors for

community development organizations

or on loan committees for CDFIs,

financial literacy activities targeting LMI

individuals, and technical assistance for

small businesses.

116

Current guidance

advises that community development

services should be tied to either

financial services or to a bank

employee’s professional expertise (e.g.,

human resources, legal).

117

Under the

current regulation, community

development services are evaluated for

large banks as part of the service test,

along with retail services. For small

retail banks, community development

services are reviewed at a bank’s option

for consideration for an ‘‘outstanding’’

rating for the institution overall. For

intermediate small retail banks and

wholesale and limited purpose banks,

community development services are

considered along with community

development loans and qualified

investments under one community

development test.

118

Examiners consider the extent to

which a bank provides community

development services, as well as the

innovativeness and responsiveness of

the activities.

119

Examiners may

consider a variety of measures, such as

the number of LMI participants; the

number of organizations served; the

number of sessions sponsored; or the

bank staff hours dedicated.

Additionally, the Interagency Questions

and Answers provides some guidance

on the qualitative evaluation of

community development services,

including whether the service activity

required special expertise and effort on

the part of the bank, the impact of a

particular activity on community needs,

and the benefits received by a

community.

120

Both industry and community

stakeholders recognize the value of

community development services in

establishing the partnerships needed to

build capacity and foster the growth of

the community development ecosystem.

Stakeholders have noted the high value

of bank staff serving on local nonprofit

boards and providing technical

expertise to local organizations,

particularly in rural or underserved

areas. Stakeholders have also suggested

improving the consistency and

transparency of the evaluation of

community development services,

which is heavily reliant on examiner

judgment. Many stakeholders have

stated that a qualitative review of

community development services and

consideration of performance context

would be more effective than an

approach that tried to quantify the value

of community development services.

These stakeholders have expressed

support for efforts to standardize the

qualitative evaluation of the impact of

community development services.

Additionally, some stakeholders have

argued that community development

services should be weighted more

heavily in a revised framework

compared to current procedures.

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12 CFR 228.12(i).

122

See Q&A §ll.12(h)—8.

123

See Q&A §ll.12(i). ‘‘Providing financial

services means providing services of the type

generally provided by the financial services

industry.’’ Q&A §ll.12(i)—1. Examples include

‘‘providing services reflecting a financial

institution’s employees’ areas of expertise at the

institution, such as human resources, information

technology, and legal services.’’ Q&A §ll.12(i)—

3.

124

See 12 CFR 228.12(g).

125

See, e.g., Q&A §ll.12(h)—8.

2. Potential Community Development

Services Subtest Framework

The Board is proposing a Community

Development Services Subtest that is

primarily qualitative and would focus

on the impact and responsiveness of

these activities in each of a bank’s

assessment area(s). The Board is

exploring whether there are quantitative

measures that banks could submit on

their activities, such as the number and

hours of community development

services, the community development

purpose, and the geographies impacted

by the activity. A standardized data

format provided by the Board could

streamline the process for banks and

examiners and produce a more

consistent and transparent evaluation

methodology.

The Board is also interested in

whether other standardized metrics

could improve the consistency of the

evaluation, such as the ratio of

community development services hours

to the number of bank employees. Both

industry and community stakeholders

have expressed concerns that

monetizing community development

services based on an hourly wage for all

employees would result in measuring

inputs rather than impact.

Impact Score for Community

Development Services. In addition to

quantitative measures, the Board is

contemplating the use of an ‘‘impact

score’’ to establish more consistent and

transparent standards for the qualitative

review of community development

services. This concept is similar to the

one described above for the Community

Development Financing Subtest, and

would measure the impact of a bank’s

community development services

activities on community needs. A bank

could submit information, such as the

number of clients in financial education

classes who opened a bank account or

a description of how a banker’s service

on the board of directors of a local

organization supported the creation of a

new small business lending program.

Examiners would assign an impact score

to community development service

activities based on the information

provided by the bank and other

performance context information, with

more responsive activities receiving a

higher score. The overall impact score

for the assessment area could be used in

conjunction with some of the

quantitative measures described above.

This use of the impact score could make

the qualitative review more transparent

and would provide greater clarity on the

types of activities that are considered

responsive to community needs.

Request for Feedback:

Question 48. Should the Board

develop quantitative metrics for

evaluating community development

services? If so, what metrics should it

consider?

Question 49. Would an impact score

approach for the Community

Development Services Subtest be

helpful? What types of information on a

bank’s activities would be beneficial for

evaluating the impact of community

development services?

3. Community Development Services

and Volunteer Activities

The Board is considering several

options for revising the definition of

community development services to

include a wider range of volunteer

activities that help to support local

communities and address important

community needs. Currently,

community development services are

defined as activities that: (1) Have a

primary purpose of community

development; (2) are related to the

provision of financial services; and (3)

have not been considered in the

evaluation of a bank’s retail banking

services.

121

A primary community

development purpose is generally

determined by assessing whether a

majority of those served by the activity

are LMI individuals or communities,

small businesses or small farms, and/or

certain distressed or underserved rural

geographies, or based on the express,

bona fide intent of the activity.

122

Additionally, guidance advises that

community development services

should be generally tied to either

financial services or a bank employee’s

professional expertise in order to

receive CRA consideration.

123

Community development services

currently qualify under one of the four

prongs of the existing definition of

community development, as discussed

in Section VIII: Affordable housing;

community services; economic

development; and revitalization and

stabilization.

124

Volunteer Activities in Rural Areas

Unrelated to the Provision of Financial

Services. The Board is proposing to

broaden the range of qualifying

community development services for

banks in rural assessment areas to

include volunteer activities that have a

primary purpose of community

development, but do not use the

employee’s technical or financial

expertise. Under this option, activities

such as volunteering at a homeless

shelter or serving food at a soup kitchen

could become eligible. Some

stakeholders have argued that this

expansion would allow for increased

bank employee participation in

community development activities in

rural areas, where community

development capacity is limited.

Other Volunteer Activities in Rural

Areas. The Board is proposing to

expand consideration of activities in

rural communities to include activities

that address local community needs

generally, without having to

demonstrate a primary purpose of

community development. In these

communities, bank employees often

provide needed leadership for nonprofit

and civic organizations that are

addressing community needs and serve

as a catalyst for local economic

development, even though some of

these organizations do not necessarily

have a primary purpose of community

development as defined in the

regulation.

For example, serving on a board of a

local chamber of commerce focused on

economic development in a rural area

could qualify, even if the organization

was engaged in activities that did not

typically qualify as economic

development under the definition of

community development. This

approach is intended to provide

incentives for additional civic and

nonprofit volunteer activity in places

with limited community development

capacity, and it could encourage banks

to take a leadership role in developing

solutions to address unmet community

needs in rural communities.

Financial Literacy and Housing

Counseling Without Regard to Income

Level. Finally, the Board is

contemplating whether financial

education and literacy activities should

be considered without regard to the

income level of the beneficiaries. Under

current guidance, eligible financial

education and literacy activities must be

targeted toward LMI beneficiaries, such

as a housing counseling program in a

low-income neighborhood.

125

Broadening eligibility for financial

literacy and housing counseling

activities to all income levels would

expand the range of eligible activities.

For example, a financial planning

seminar with senior citizens or a

financial education program for

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12 CFR 228.12(g)(1).

127

Q&A §ll.12(g)(1)—1.

children in an upper-income school

district could qualify for consideration.

Some stakeholders were supportive of

expanding consideration of some of

these activities to include activities that

benefit all income levels, due to the

presumed benefit to the financial well-

being of the entire community.

However, many community

organization stakeholders expressed

concern that expanding financial

education and literacy activities to

recipients of all income levels could

result in a reduction in programs

directly benefiting LMI people and

places.

Request for Feedback:

Question 50. Should volunteer

activities unrelated to the provision of

financial services, or those without a

primary purpose of community

development, receive CRA

consideration for banks in rural

assessment areas? If so, should

consideration be expanded to include

all banks?

Question 51. Should financial literacy

and housing counseling activities

without regard to income levels be

eligible for CRA credit?

VIII. Community Development Test

Qualifying Activities and Geographies

The Board is proposing ways to

clarify what activities would be

considered under the Community

Development Test, as well as clarifying

where a bank could receive credit for

community development activities

outside of assessment areas. First, the

Board presents approaches to establish

more consistent standards for the

existing community development

definition subcomponents. Second, this

section discusses available options to

encourage more community

development activity through mission-

oriented banks and financial

intermediaries, including MDIs, women-

owned financial institutions, low-

income credit unions, and CDFIs. Third,

the section discusses options to increase

certainty about how qualifying activities

in broader statewide and regional areas

outside of a bank’s assessment areas will

be considered. Finally, the Board

proposes increasing ex ante clarity

regarding qualifying activities by

publishing an illustrative list of example

activities and providing a pre-approval

process.

A. Definitions for Community

Development Subcomponents

This section describes potential

changes to clarify eligibility criteria for

the affordable housing, community

services, economic development, and

revitalization and stabilization

subcomponents of the definition of

community development to give banks

and communities greater certainty about

what activities will be considered, and

to continue to emphasize activities that

are impactful and responsive to

community needs.

1. Affordable Housing

Regulation BB defines ‘‘community

development’’ to include ‘‘affordable

housing (including multifamily rental

housing) for low- or moderate-income

individuals.’’

126

Stakeholders have

emphasized the critical importance of

CRA-motivated capital as a source of

funding for affordable housing around

the country and promoting

homeownership among LMI

populations. Therefore, as the Board

contemplates revisions to Regulation

BB, an important goal is to ensure strong

incentives for banks to provide

community development loans and

investments for the creation and

preservation of affordable housing, both

rental and owner-occupied.

Broadly, the term ‘‘affordable

housing’’ refers to housing that is

targeted to LMI individuals. The

concept of ‘‘affordable housing’’ for LMI

individuals hinges on whether LMI

individuals benefit, or are likely to

benefit, from the housing. Affordable

housing currently could receive

consideration if its express, bona fide

intent, as stated, for example, in a

prospectus, loan proposal, or

community action plan, is community

development.

127

Current CRA guidance does not

expressly clarify that unsubsidized

affordable housing (often referred to as

naturally occurring affordable housing)

is eligible. Many stakeholders have

noted the importance of preserving

unsubsidized housing that is affordable

to LMI households. These stakeholders

have suggested that financing the

renovation of unsubsidized affordable

units, in addition to constructing new

affordable units, be considered as a

CRA-eligible activity. However,

stakeholders had different views about

whether and how to ensure that the

financing supports unsubsidized

affordable housing units that will

remain affordable to LMI households

over a meaningful period of time.

a. Subsidized Affordable Housing

The Board is contemplating new

regulatory language that would specify

that a housing unit would be considered

affordable if it is purchased, developed,

rehabilitated, or preserved in

conjunction with a federal, state, local,

or tribal government affordable housing

program or subsidy, with the bona fide

intent of providing affordable housing.

This definition is intended to capture a

wide variety of subsidies, including tax

credit programs (such as the LIHTC),

federal government direct subsidies

(such as U.S. Departments of Housing

and Urban Development (HUD) and

Agriculture programs), and state and

local government direct subsidies for

the production or preservation of

affordable housing. These programs

could be for rental (such as HUD

Section 8 vouchers) or homeownership

(such as down-payment assistance

programs for LMI borrowers). The

suggested language could also cover

programs that are not monetary

subsidies, but that have the express

intent of producing or preserving

affordable housing, such as a loan in

support of a land bank program.

b. Unsubsidized Affordable Rental

Housing

The Board is considering several

options to clarify that the affordable

housing prong of the community

development definition includes the

financing of certain unsubsidized

affordable housing units and projects—

both the preservation of existing units

and the production of new unsubsidized

affordable housing.

The Board is considering a definition

for eligible unsubsidized affordable

housing requiring that: (1) The rent be

affordable (potential definitions of

‘‘affordable’’ are discussed below); and

(2) the unit(s) be located in either an

LMI geography or a geography where

the median renter is LMI. These two

criteria are intended to be a proxy for

tenant income certification to determine

that the housing benefits LMI

households; as many owners and

managers of buildings with

unsubsidized, yet affordable units, do

not certify tenant income on an ongoing

basis, that information might not be

available to examiners. To ensure that

CRA acts as an incentive for affordable

housing preservation and development

in all communities, the Board is also

considering alternatives to define

unsubsidized affordable housing.

Finally, in commenting on expanding

the affordable housing definition to

include unsubsidized affordable

housing, many stakeholders have noted

the danger of providing CRA credit for

initially affordable units that later

increase rents to an unaffordable level

in gentrifying areas. The Board is

considering options to ensure that

community development financing

activities ensure long-term affordability

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Transit-oriented development, or TOD,

includes a mix of commercial, residential, office,

and entertainment real estate centered around or

located near a transit station, https://

www.transit.dot.gov/TOD.

129

See Q&A §ll.12(h)—8.

130

MBS generally are ‘‘debt obligations that

represent claims to the cash flows from pools of

mortgage loans, most commonly on residential

property.’’ See U.S. Securities and Exchange

Commission, ‘‘Mortgage-Backed Securities,’’

https://www.sec.gov/fast-answers/

answersmortgagesecuritieshtm.html.

131

See Q&A §ll.23(b)—2.

132

12 CFR 228.12(g)(2). Among possible changes

to update Regulation BB, the Board is examining

ways to alleviate possible confusion between the

definition for ‘‘community development services’’

and the definition for ‘‘community services.’’

Although there is some overlap, these activities are

generally considered under different components of

CRA examinations and under different standards.

Among differences, community development

services generally include a broader set of service

activities and can be defined using any of the four

primary community development definitions. The

Continued

and limit displacement, while also

being mindful of additional burden

associated with supplementary

documentation requirements.

c. Determining Affordability

In considering which data sources

and calculations should be used to

determine rental affordability in lieu of

verifying tenant income for

unsubsidized units, ‘‘affordable’’ rents

could be calculated based on area

median income (AMI) using the

standard that families should pay no

more than 30 percent of their income

toward housing. Other options include

using HUD Fair Market Rents (FMR) or

LIHTC rents to determine rental

affordability.

Similarly, the Board is contemplating

what documentation should be

requested to determine affordability of

single-family developments by for-profit

entities. Under current guidance,

construction and other temporary

financing of the construction-only

portion of a construction-to-permanent

loan to a for-profit entity secured by

residential real estate is considered if it

can be demonstrated that the activity

has a primary purpose consistent with

the definition of community

development. However, examiners have

not consistently evaluated these

activities partly due to lack of

documentation reflecting that the

activity has a primary purpose of

community development and is

intended for households earning 80

percent or less of AMI.

d. Responsiveness of Affordable

Housing Activities

The Board is also considering

specifying certain activities that could

be viewed as particularly responsive to

affordable housing needs. Such

activities could include, but would not

be limited to, the financing of new or

rehabilitated affordable housing units

that include renewable energy facilities,

energy-efficiency upgrades, or water

conservation upgrades. The Board is

also considering whether financing of

housing that is close to public

transportation, often referred to as

‘‘transit-oriented development,’’

128

should be designated as particularly

responsive. Finally, housing for very

low-income, homeless or other harder to

serve populations would be considered

particularly responsive.

e. Pro Rata Credit in Mixed-Income

Projects

For mixed-income developments, an

important issue is how to provide credit

for buildings where a portion of units—

but not all units—is affordable to

families meeting LMI definitions. There

are negative effects of concentrating

poverty to a geographic area or building,

and one way to counteract this is the

development of mixed-income housing

projects in areas with lower poverty

rates. However, providing credit for

mixed-income housing requires

considering how credit is calculated in

the community development financing

metric both for buildings where over 50

percent of units are affordable and

buildings where this level falls below 50

percent.

Under the current ‘‘primary purpose’’

guidance, a bank can receive full credit

for a loan or investment if a majority of

the dollars or beneficiaries of the

activity are identifiable to one or more

of the enumerated community

development purposes. For mixed-

income housing where less than a

majority of the dollars benefit LMI

families or less than a majority of the

beneficiaries are LMI, a bank can receive

a pro rata share.

129

One option would be continuing to

provide the same pro rata consideration

where 50 percent or fewer of the units

are affordable. Another option would be

to provide 50 percent consideration for

buildings or projects that meet a

minimum percentage of affordable

units, such as 20 percent, which could

serve as a greater incentive for mixed-

income housing. Another consideration

is whether pro rata treatment should be

the same for unsubsidized affordable

housing, compared to subsidized

affordable housing or buildings subject

to affordable housing set-asides required

by federal, state, or local governments.

f. Mortgage-Backed Securities Related to

Affordable Housing

The Board is contemplating the

appropriate CRA treatment of mortgage-

backed securities (MBS).

130

Currently,

bank purchases of MBS receive CRA

credit if they are backed by loans that

finance subsidized multifamily rental

housing, loans for mixed-income

housing that includes affordable

housing for LMI families, or loans to

LMI borrowers.

131

Issuance of qualifying

MBS can improve liquidity for lenders

that make home mortgage loans to LMI

borrowers, increasing the capacity of

these lenders to make more loans that

are needed in the community. Some

stakeholders, however, are concerned

that some banks rely heavily on

purchases of qualifying MBS for CRA

purposes instead of pursuing more

impactful and responsive community

development activities, which often

involve deeper engagement with

communities and entail a greater level

of complexity for the bank. Other

stakeholders voiced concern that some

banks purchase large amounts of MBS

just prior to their CRA examinations and

then sell them shortly afterwards to

another bank, which has little positive

impact in their community.

Request for Feedback:

Question 52. Should the Board

include for CRA consideration

subsidized affordable housing,

unsubsidized affordable housing, and

housing with explicit pledges or other

mechanisms to retain affordability in

the definition of affordable housing?

How should unsubsidized affordable

housing be defined?

Question 53. What data and

calculations should the Board use to

determine rental affordability? How

should the Board determine

affordability for single-family

developments by for-profit entities?

Question 54. Should the Board

specify certain activities that could be

viewed as particularly responsive to

affordable housing needs? If so, which

activities?

Question 55. Should the Board change

how it currently provides pro rata

consideration for unsubsidized and

subsidized affordable housing? Should

standards be different for subsidized

versus unsubsidized affordable housing?

2. Community Services

Regulation BB also defines

community development to include

‘‘community services targeted to low- or

moderate-income individuals,’’ but does

not further define community

services.

132

The Interagency Questions

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Board is considering ways of alleviating any

existing confusion, including changing the similar

names of these definitions.

133

See Q&A §ll.12(t)—4.

134

Q&A §ll.12(g)(2)—1.

135

See, e.g., Karen G. Mills, Fintech, Small

Business & the American Dream, Ch. 4 (2018);

Federal Reserve Banks, ‘‘Small Business Credit

Survey: 2020 Report on Employer Firms’’ (Aug.

2020), https://www.fedsmallbusiness.org/

medialibrary/FedSmallBusiness/files/2020/2020-

sbcs-employer-firms-report.

136

13 CFR 121.301.

137

12 CFR 228.12(g)(3).

138

See Q&A §ll.12(g)(3)—1. Under current

guidance, the Board presumes any loan or service

to or investment in a SBDC, SBIC, Rural Business

Investment Company, New Markets Venture Capital

Company, New Markets Tax Credit-eligible

Community Development Entity, or CDFI that

finances small businesses or small farms promotes

economic development. Id.

139

See id.

140

See, e.g., Federal Reserve Banks, ‘‘Small

Business Credit Survey: 2019 Report on Minority-

Owned Firms’’ (Dec. 2019), https://

www.fedsmallbusiness.org/medialibrary/

fedsmallbusiness/files/2019/20191211-ced-

minority-owned-firms-report.pdf.

and Answers includes examples of what

counts as community services, such as

programs for LMI youth, homeless

centers, soup kitchens, healthcare

facilities, battered women’s centers, and

alcohol and drug recovery programs

serving LMI individuals.

133

The Board believes that it is important

to maintain the focus of this community

development subcomponent on

community services ‘‘targeted to low- or

moderate-income individuals,’’ and is

considering how to build on existing

guidance to define this standard. One

option is to define more specifically the

different categories of eligible

community services activities, such as

childcare, education, healthcare,

financial education, job training, and

social services.

The Board is also considering several

ways to standardize how a bank can

determine whether an activity meets the

‘‘targeted to low- or moderate-income

individuals’’ standard. One option

under consideration would be to clarify

the use of a geographic proxy to

determine eligibility: If the activity or

relevant organization were located in an

LMI census tract, the activity would

meet the ‘‘targeted to low- or moderate-

income individuals’’ standard. A second

option would also build on current

guidance by both clarifying, and

expanding upon, the proxies that banks

can use to demonstrate that 50 percent

of participants served by a program or

organization are LMI individuals.

Examples from current guidance

include, but are not limited to, services

that are provided to students or their

families from a school at which the

majority of students qualify for free or

reduced-price meals under the U.S.

Department of Agriculture’s National

School Lunch Program or are targeted to

individuals who receive or are eligible

to receive Medicaid.

134

The Board is

considering expanding this list to

include activities targeted to recipients

of federal disability programs and

recipients of federal Pell Grants.

Request for Feedback:

Question 56. How should the Board

determine whether a community

services activity is targeted to low- or

moderate- income individuals? Should a

geographic proxy be considered for all

community services or should there be

additional criteria? Could other proxies

be used?

3. Economic Development

The Board believes that activities

qualified through the economic

development prong of Regulation BB

provide key support for small

businesses and small farms, as well as

incentives for other types of important

assistance for business development

efforts. Research indicates that the

smallest segment of small businesses

often have more difficulty obtaining

credit and are more challenging for

banks to serve,

135

and the COVID–19

pandemic has raised significant new

challenges for small businesses. The

Board is therefore considering ways to

revise the economic development

definition to better encourage activities

most supportive of small businesses and

farms, while also improving the overall

transparency of the definition.

Current Economic Development

Standards and Guidance. The

Regulation BB definition of community

development includes ‘‘activities that

promote economic development by

financing businesses or farms that meet

the size eligibility standards of the

Small Business Administration’s

Development Company (SBDC) or Small

Business Investment Company (SBIC)

programs

136

or have gross annual

revenues of $1 million or less.’’

137

Thus, to qualify for CRA consideration

under this provision, a bank’s financing

activity must be for small businesses

and small farms that fall beneath a

regulatory ‘‘size’’ ceiling, and the

financing must ‘‘promote economic

development.’’

The Interagency Questions and

Answers identifies several types of

activities to satisfy the requirement that

an activity ‘‘promote economic

development’’:

•Activities that support permanent

job creation, retention, and/or

improvement:

ÆFor persons who are currently LMI

or in LMI geographies or areas targeted

for redevelopment by federal, state,

local or tribal government; or

Æby financing intermediaries that

lend to, invest in, or provide technical

assistance to start-ups or recently

formed small businesses or small farms,

or through technical assistance or

supportive services for small businesses

or farms, such as shared space,

technology, or administrative

assistance;

138

and

•Federal, state, local, or tribal

economic development initiatives that

include provisions for creating or

improving access by LMI persons to jobs

or to job training or workforce

development.

139

Stakeholders have noted various

challenges with the current definition of

economic development. Some observe

that while guidance includes a variety

of economic development activities, the

smallest segment of businesses and

farms may still face specific unmet

financing needs. Industry stakeholders

also indicate that it can be difficult to

demonstrate that an activity meets both

the ‘‘size test’’ and ‘‘purpose test.’’

Specifically, industry stakeholders have

indicated that it can be difficult to

demonstrate that small business or

small farm activity has created, retained,

and/or improved LMI employment.

Encouraging Activities Supporting

Small Businesses and Farms and

Minority-Owned Small Businesses. The

Board is considering ways to provide

incentives for economic development

activity with the smallest businesses

and farms, as well as minority-owned

small businesses. One approach would

be specifying that economic

development activity focused on the

smallest businesses, smallest farms, and

minority-owned small businesses would

be considered responsive and impactful

in developing a Community

Development Test conclusion or rating.

In recent years, the number of minority-

owned businesses has grown rapidly;

however, research reports small

businesses owned by minorities as

having more difficulty than white-

owned firms gaining approval for loans

from banks.

140

Access to financing for

these businesses is vital in fostering

continued growth and broader economic

opportunity in their communities.

This approach, focused on

responsiveness, would have the benefit

of encouraging activity with smaller

businesses and minority-owned small

businesses without changing the

business size standards for the

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141

As discussed in Section VI, the Board is also

currently considering adjusting the small business

and small farm loan size thresholds based on

inflation and whether to update these thresholds for

inflation at regular intervals.

142

12 CFR 228.12(g)(4).

143

Designated disaster areas are geographic areas

covered by a major federal disaster declaration by

the President pursuant to the declaration process

specified by the Federal Emergency Management

Agency. See 44 CFR part 206, subpart B. A

nonmetropolitan middle-income geography will be

designated as distressed if it is in a county that

meets one or more of the following triggers: (1) An

unemployment rate of at least 1.5 times the national

average; (2) a poverty rate of 20 percent or more;

or (3) a population loss of 10 percent or more

between the previous and most recent decennial

census or a net migration loss of five percent or

more over the five year period preceding the most

recent census. A nonmetropolitan middle-income

geography will be designated as underserved if it

meets criteria for population size, density, and

dispersion that indicate the area’s population is

sufficiently small, thin, and distant from a

population center that the tract is likely to have

difficulty financing the fixed costs of meeting

essential community needs. Q&A

§ll.12(g)(4)(iii)—1.

144

See Q&A §ll.12(g)(4).

145

See Q&As §ll.12(g)(4)(i)—1,

§ll.12(g)(4)(ii)—2, and §ll.12(g)(4)(iii)—4.

146

See Q&As §ll.12(g)(4)—2,

§ll.12(g)(4)(ii)—2, and §ll.12(g)(4)(iii)—3.

definition overall. However, this

approach might provide insufficient

incentives for engaging in activities with

smaller businesses and minority-owned

businesses given that loans to other

businesses might have larger loan

amounts and, therefore, more of an

impact on the community development

financing metric.

Another option would be to qualify

economic development activities using

only a revised gross annual revenue

threshold, and not SBIC or SBDC size

standards. This approach could help

focus economic development activities

on smaller businesses and farms and

might also reduce confusion about

multiple size standard options by

establishing a single, transparent

threshold. The Board recognizes that a

possible drawback to using only a

revised gross annual revenue threshold

is that certain currently eligible

activities that qualify under the

economic development definition might

no longer qualify for consideration.

Relatedly, the Board is also

considering the appropriate gross

annual revenue standards for defining a

small business or farm, and for making

these standards uniform under both the

Retail Test and the Community

Development Test. Revisions to the

gross annual revenue thresholds for

small businesses and small farms are

discussed in Section VI.

141

Demonstrating an Economic

Development Purpose Through Job

Creation. Another area of focus is how

to provide more clarity on the standard

that financing activities for small

businesses demonstrate LMI job

creation, retention, or improvement.

Meeting this economic development

purpose standard by documenting the

number of jobs created, retained or

improved can be challenging. In

addition, activities supporting small

businesses and small farms may serve

important purposes beyond

employment, including by covering

start-up or working capital costs. The

COVID–19 pandemic has further

underlined the need for a broad range of

financing activities to help sustain small

businesses and farms overall. The Board

is considering what standards could be

established to demonstrate that an

activity led to job creation, retention

and improvement or whether the

smallest businesses below a specified

threshold could be exempted from the

standard to demonstrate LMI job

creation, retention, or improvement.

Workforce Development and Job

Training Programs. The Board is also

considering whether workforce

development activities should be

included as a separate prong of the

economic development definition,

regardless of whether these activities

also support small businesses and

farms. This approach would include

federal, state, local, or tribal economic

development initiatives that include

provisions for creating or improving

access by LMI persons to jobs, job

training, or workforce development.

Request for Feedback:

Question 57. What other options

should the Board consider for revising

the economic development definition to

provide incentives for engaging in

activity with smaller businesses and

farms and/or minority-owned

businesses?

Question 58. How could the Board

establish clearer standards for economic

development activities to ‘‘demonstrate

LMI job creation, retention, or

improvement’’?

Question 59. Should the Board

consider workforce development that

meets the definition of ‘‘promoting

economic development’’ without a

direct connection to the ‘‘size’’ test?

4. Revitalization and Stabilization

The Board is considering how to

update and clarify the revitalization and

stabilization subcomponent of the

community development definition,

which currently encompasses activities

that revitalize or stabilize three targeted

geography categories: LMI census tracts,

designated disaster areas, and distressed

or underserved nonmetropolitan middle

income census tracts.

142

Since its

inception, the revitalization and

stabilization prong of community

development has included eligible

activities in LMI geographies, defined as

census tracts where the majority of

households have incomes at or below 80

percent of area median income.

Originally, these tracts often overlapped

with federally designated Empowerment

Zones and Enterprise Communities,

marked by high poverty rates and

elevated levels of emigration. In 2005,

the agencies broadened eligible

geographies to include federally

designated disaster areas and distressed

or underserved middle-income

nonmetropolitan areas.

143

The Interagency Questions and

Answers provides examples of a broad

range of qualifying revitalization and

stabilization activities for each targeted

geography category. Some of these

activities span across each targeted

geography category and some activities

are unique to a specific geography

category. Based on the regulation and

accompanying guidance,

144

CRA

consideration could extend to activities

that range from attracting an industrial

park for businesses whose employees

include LMI individuals, to financing

new broadband internet infrastructure

in poorer rural communities. Other

examples include providing financing to

attract a major new employer that will

create long-term job opportunities,

including for LMI individuals, or

activities that provide financing or other

assistance for essential infrastructure in

distressed or underserved

nonmetropolitan middle-income census

tracts.

145

Considering activities under the

existing revitalization and stabilization

prong of the community development

definition often involves a fact-specific

review by examiners. To determine

whether activities revitalize or stabilize

a qualified geography, examiners

evaluate an activity’s actual impact on

the targeted geography. The Interagency

Questions and Answers also instructs

examiners to give greater weight to

activities most responsive to community

needs and that primarily benefit LMI

individuals.

146

Given the complexity of the existing

definition and guidance on the

revitalization and stabilization category,

in addition to the particularly fact-

specific nature of eligibility and

responsiveness determinations, the

Board is considering how to both

provide more detail in the regulation on

which activities qualify in which

targeted geographies and simplify the

definition overall. Some of the key

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See Q&As §ll.12(g)(4)—2,

§ll.12(g)(4)(i)—1, §ll.12(g)(4)(ii)—2, and

§ll.12(g)(4)(iii)—3.

148

See Q&A §ll.12(g)(4)(iii)—4.

149

See Q&A §ll.12(g)(4)(ii)—2.

150

See Q&A §ll.12(g)(4)(i)—1. In certain

situations, guidance instructs examiners to

determine whether an activity is consistent with a

community’s informal plans for the revitalization

and stabilization of the LMI geography without

standards for determining consistency. Id.

151

See Q&As §ll.12(g)(4)(ii)—2, and

§ll.12(g)(4)(iii)—3.

issues that would need resolution are

described below.

Activities That Attract New, or Retain

Existing, Residents and Businesses. The

Interagency Questions and Answers

states that eligible activities in each of

the targeted geography categories

include activities that attract new, or

retain existing, residents and

businesses, with greater weight given to

activities that are most responsive to

community needs.

147

The Board is

considering whether to codify the

treatment of these activities across each

of the targeted geography categories.

This approach would provide greater

consistency in defining eligible

activities that help to attract or retain

businesses or residents, which in turn

could provide greater certainty

regarding which activities qualify and

could also help support greater

investment in targeted geographies. The

Board is interested in ensuring that, in

addition to serving a revitalization and

stabilization purpose, these activities

include benefits to LMI communities

and individuals, or other underserved

communities. For example, some

community group stakeholders have

noted that existing guidance qualifies

new housing for middle- or upper-

income individuals as an activity that

revitalizes or stabilizes an LMI

geography, as long as the housing

attracts new residents to the

community. The concern raised by these

stakeholders is that, in some LMI

communities, this new housing may in

fact contribute to the displacement of

existing LMI residents in the

community.

Definitions for Infrastructure,

Community Facilities, and Other Large-

Scale Projects. The Board recognizes

that investments in large-scale projects,

infrastructure, and community facilities

can be essential for revitalizing and

stabilizing targeted geographies and is

interested in how to define the

eligibility of these activities in a way

that retains a strong connection between

these projects and meeting the needs of

these communities.

Currently, this issue is addressed

differently across targeted geography

categories. For example, for underserved

nonmetropolitan middle-income census

tracts, current guidance describes

activities that help meet essential

community needs as including

financing the construction, expansion,

improvement, maintenance, or

operation of essential infrastructure or

community facilities. Community

facilities noted in current guidance

include facilities for health services,

education, public safety, public

services, industrial parks, affordable

housing, or communication services.

148

The Interagency Questions and Answers

does not explicitly discuss

infrastructure and community facilities

in other targeted geographies.

Stakeholders have indicated that

these inconsistencies leave some banks

uncertain about what qualifies, and that

the use of different standards across the

geographies is a significant source of

confusion for banks and communities

alike. Community stakeholders have

also commented that large-scale

development and infrastructure projects

may sometimes have limited benefit for

targeted geographies. Given the large

size of these projects, with a dollar-

based metric approach for evaluating

community development financing,

stakeholders worry that resources may

be directed to these activities instead of

smaller and more impactful activities.

Activities Specific to Designated

Disaster Areas. The Interagency

Questions and Answers includes

examples of certain qualifying activities

specific to designated disaster areas. For

example, current guidance includes

eligibility for activities that provide

financial assistance for rebuilding

needs, or for services to individuals who

have been displaced from designated

disaster areas.

149

The Board is

considering whether codifying the

treatment of qualifying activities

specific to designated disaster areas

would help provide stakeholders with

additional certainty. Additionally, the

Board is considering whether the list of

relevant activities related to disaster

recovery should be expanded to include

disaster preparedness and climate

resilience in certain targeted

geographies.

Treatment of a Government Plan.

According to existing guidance,

examiners will presume an activity

revitalizes or stabilizes a geography if

the activity is consistent with a

government plan for the revitalization or

stabilization of the area. However, the

types of government plans and the

required degree of formality of the plan

differ across the three qualified

geography categories. The Interagency

Questions and Answers indicates that

activities in LMI areas are presumed to

qualify if the activities receive official

designation as consistent with a federal,

state, local, or tribal government plan

for the revitalization or stabilization of

the low- or moderate-income

geography.

150

In other qualified

geographies, however, guidance

indicates that an activity need only be

consistent with a government plan and

does not need an official designation to

be eligible for consideration.

151

To

clarify when this standard applies, the

Board proposes to specify in Regulation

BB which activities require association

with a federal, state, local, or tribal

government revitalization plan and the

standards for the type of plan required

for eligibility. The Board is also

exploring the alternative standards

necessary for demonstrating that an

activity revitalizes or stabilizes a

targeted geography in the absence of a

government plan.

Request for Feedback:

Question 60. Should the Board codify

the types of activities that will be

considered to help attract and retain

existing and new residents and

businesses? How should the Board

ensure that these activities benefit LMI

individuals and communities, as well as

other underserved communities?

Question 61. What standards should

the Board consider to define ‘‘essential

community needs’’ and ‘‘essential

community infrastructure,’’ and should

these standards be the same across all

targeted geographies?

Question 62. Should the Board

include disaster preparedness and

climate resilience as qualifying

activities in certain targeted

geographies?

Question 63. What types of activities

should require association with a

federal, state, local, or tribal government

plan to demonstrate eligibility for the

revitalization or stabilization of an area?

What standards should apply for

activities not requiring association with

a federal, state, local, or tribal

government plan?

B. Minority Depository Institutions and

Other Mission-Oriented Financial

Institutions

Recognizing the importance of

mission-oriented financial

intermediaries in helping retail and

community development financing

reach LMI and minority individuals and

communities, the Board is proposing

ways to encourage more activities that

support MDIs, CDFIs, and other

mission-oriented financial institutions.

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See, e.g., SR Letter 13–15/CA Letter 13–11

(‘‘Federal Reserve Resources for Minority

Depository Institutions’’), (Aug. 5, 2013), p.1, note

1, https://www.federalreserve.gov/supervisionreg/

srletters/sr1315.pdf.

153

12 U.S.C. 2903, 2907.

154

12 U.S.C. 2903(b). Majority-owned institution

is defined as a ‘‘nonminority-owned and

nonwomen-owned financial institution.’’ Id.

155

12 U.S.C. 2907(a).

156

12 U.S.C. 2903(b).

157

12 CFR 228.21(f).

158

U.S. Department of the Treasury CDFI Fund,

CDFI Certification, https://www.cdfifund.gov/

programs-training/certification/cdfi/Pages/

default.aspx.

1. Minority Depository Institutions,

Women-Owned Financial Institutions,

and Low-Income Credit Unions

The Board recognizes the importance

of MDIs in providing equitable financial

access to LMI and minority consumers

and communities. MDIs are banks that

are owned by, or that predominately

serve and have a board composed of a

majority of, African Americans, Native

Americans, Hispanic Americans, or

Asian Americans.

152

Most MDIs are

small community banks that specialize

in serving a minority, and often LMI,

customer base. Congress has recognized

these institutions in the CRA statute,

including special consideration for

MDIs as well as for women-owned

financial institutions and low-income

credit unions.

153

Specifically, majority-

owned institutions receive CRA credit

for capital investment, loan

participation, training, technical

assistance, and other ventures

undertaken by the bank in cooperation

with MDIs, women-owned institutions,

and low-income credit unions.

154

Majority-owned institutions are also

eligible for CRA credit for donating or

selling on favorable terms a branch

located in a predominately minority

neighborhood to an MDI or women-

owned depository institution.

155

These

activities must help meet the credit

needs of local communities in which

the MDIs, women-owned institutions,

and low-income credit unions are

chartered.

156

Unlike other provisions of

CRA, these activities need not also

benefit a bank’s assessment area(s) or

the broader statewide or regional area

that includes the bank’s assessment

area(s).

157

The Board has focused on ways to

provide better incentives to majority-

owned institutions to partner with MDIs

and other mission-oriented financial

institutions. The Board seeks to ensure

that any provisions to assist MDIs are

clearly defined and applied in CRA

performance evaluations, and that these

special provisions are prominent and

clear in a revised Regulation BB,

supervisory guidance, and other agency

public documentation.

a. Clarify Treatment of Activities With

MDIs, Women-Owned Financial

Institutions, and Low-Income Credit

Unions Outside of a Bank’s Assessment

Area

Although majority-owned institutions

currently may receive CRA

consideration for investments in MDIs,

women-owned financial institutions,

and low-income credit unions outside of

the majority-owned institution’s

assessment areas(s) or the broader

statewide or regional area, such

activities are not common. Stakeholders

have noted that bankers do not know

with confidence where and how these

activities will count in their CRA

evaluations. Therefore, the Board

proposes that activities in support of

these entities should be counted at the

institution level when they are outside

of the bank’s assessment areas or

eligible states and regions, as discussed

in Section VIII.C below. This would

ensure that there is a clear ‘‘place’’ for

such activities to be counted.

b. Consider Activities With MDIs,

Women-Owned Financial Institutions,

and Low-Income Credit Unions as a

Factor in Achieving an ‘‘Outstanding’’

Rating

An additional change the Board is

considering to increase the incentives

for activities in support of MDIs,

women-owned financial institutions,

and low-income credit unions is to

consider these activities as a factor in

determining whether a bank qualifies

for an ‘‘outstanding’’ rating for the Retail

Test or Community Development Test.

The Board believes that explicitly

designating these activities as a criterion

for an ‘‘outstanding’’ rating would give

them greater emphasis and would

provide banks with additional certainty

regarding how these activities would be

considered.

c. Provide Credit for MDIs, Women-

Owned Financial Institutions, and Low-

Income Credit Unions Investing in or

Partnering With Other MDIs, Women-

Owned Financial Institutions, and Low-

Income Credit Unions

Currently, only majority-owned

institutions can receive CRA

consideration for investing in MDIs,

women-owned financial institutions,

and low-income credit unions. MDIs, in

particular, vary greatly in size, and there

are several large MDIs that could invest

in smaller MDIs. Similarly, MDIs and

women-owned financial institutions

that are subject to CRA may choose to

partner in unique and mutually

beneficial ways, and could receive

credit for such activities. Therefore, the

Board is considering whether MDIs and

women-owned financial institutions

should receive CRA credit for investing

in other MDIs, women-owned financial

institutions, and low-income credit

unions.

d. Provide Credit for MDIs and Women-

Owned Financial Institutions Investing

in Limited Activities To Improve Their

Own Banks

The Board is proposing that MDIs and

women-owned financial institutions be

eligible for CRA credit for investing in

limited activities to improve their own

banks. Under this approach, MDIs and

women-owned financial institutions

could receive CRA consideration for

retained earnings (less the amount of

any dividends or stock repurchases) that

are reinvested in the bank. Eligibility

could be limited to activities that

demonstrate meaningful investment in

the business, such as staff training,

hiring new staff, opening new branches

in minority neighborhoods, or

expanding products and services.

Request for Feedback:

Question 64. Would providing CRA

credit at the institution level for

investments in MDIs, women-owned

financial institutions, and low-income

credit unions that are outside of

assessment areas or eligible states or

regions provide increased incentives to

invest in these mission-oriented

institutions? Would designating these

investments as a factor for an

‘‘outstanding’’ rating provide

appropriate incentives?

Question 65. Should MDIs and

women-owned financial institutions

receive CRA credit for investing in other

MDIs, women-owned financial

institutions, and low-income credit

unions? Should they receive CRA credit

for investing in their own institutions,

and if so, for which activities?

Question 66. What additional policies

should the Board consider to provide

incentives for additional investment in

and partnership with MDIs?

2. Community Development Financial

Institutions

CDFIs, which can be banks, credit

unions, loan funds, microloan funds, or

venture capital providers, are common

intermediaries for bank financing to

reach underserved communities.

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CDFIs certified by the U.S. Department

of the Treasury’s (Treasury Department)

CDFI Fund must meet seven criteria to

demonstrate that they are specialized

organizations that provide financial

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Id.

160

12 CFR 228.21(f).

161

In this context, region or regional refers to a

multistate area.

162

See Q&A §ll.12(h)—6; CA Letter 14–2, p.

21.

services in low-income communities

and to people who lack access to

financing.

159

While banks generally receive CRA

consideration for investing in Treasury

Department-certified CDFIs, bankers

and community groups have

commented that the regulation could

provide a stronger incentive for these

activities. Stakeholders noted that

examiners sometimes require extensive

paperwork to document that a CDFI

assists low-income populations, even

though the Treasury Department

certification of a CDFI is already a clear

indication of having a primary mission

of community development.

To provide greater certainty and

clarity, the Board proposes to grant

automatic CRA community

development consideration for

community development activities with

Treasury Department-certified CDFIs.

For activities in support of other

financial entities that use the term

‘‘CDFI’’ but are not formally certified by

the Treasury Department, the activity

would continue to be reviewed

individually, as in current practice.

Another issue is whether geographic

limitations should apply to granting

CRA credit for CDFI-related activities.

Several stakeholders have suggested that

investments in CDFIs should be

considered on a nationwide basis,

regardless of whether the CDFI operates

in a bank’s assessment area(s) or the

broader statewide or regional area that

includes the bank’s assessment area(s),

which is a condition for consideration

under current practices. Commenters

noted that this condition can be

confusing for banks considering

investments in larger CDFIs that serve

multistate areas, and that it limits

capital investments for the underserved

areas that need it the most.

To address this concern, the Board is

considering whether to treat activities

with CDFIs similarly to activities with

MDIs, women-owned financial

institutions, and low-income credit

unions, so that banks could receive CRA

consideration for loans, investments, or

services in conjunction with CDFIs

anywhere nationwide.

160

This approach

would remove the geographic

uncertainty about whether a CDFI’s

service area(s) appropriately overlaps

with a bank’s assessment area(s). This

could also incent banks to invest in

CDFIs that serve parts of the country

with few or no bank assessment areas.

However, the Board is mindful that

this approach could inadvertently

reduce the incentive for banks to focus

on their assessment areas by granting

them CRA credit for investing in CDFIs

that serve entirely different geographies.

The proposed use of the community

development financing metric and

associated benchmarks to evaluate a

bank’s assessment area activities is

intended to maintain a strong emphasis

on serving local communities. For this

reason, the Board believes that the

proposed Community Development

Financing Subtest will help to address

concerns that eligibility for certain

activities on a nationwide basis, such as

support of MDIs and other specific

institutions, would discourage banks

from meeting the needs of their

assessment areas. Alternatively, the

Board is considering whether CDFIs

should instead be subject to the

provisions of the broader geographic

areas for consideration for community

development activities described below.

Request for Feedback:

Question 67. Should banks receive

CRA consideration for loans,

investments, or services in conjunction

with a CDFI operating anywhere in the

country?

C. Geographic Areas for Community

Development Activities

The Board is considering approaches

for providing greater clarity regarding

where a bank’s community development

financing and services activities are

eligible for CRA consideration, and for

encouraging activities in areas with high

unmet needs. First, the Board is

proposing an approach that would

consider community development

activities anywhere within states,

territories, or regions where a bank has

at least one facility-based assessment

area, with the activities counted towards

the state or institution rating.

161

In

addition, the Board is considering

designating geographic areas of need

where banks could conduct activities

outside of assessment areas. The Board

believes that these approaches could

help alleviate the CRA hot spots and

deserts dynamic and increase

community development lending and

investment in areas where they are

needed the most.

1. Current Approach for Reviewing

Activities Outside of Assessment Areas

and Stakeholder Feedback

Under current examination

procedures, the standards for whether a

bank receives consideration for

community development loans,

investments, and services differ

depending on where that activity takes

place. First, banks can receive

consideration for community

development financing activities that

have a purpose, mandate or function of

serving the bank’s assessment area(s).

Banks can also receive consideration for

community development activities in a

‘‘broader statewide or regional area’’

that includes the bank’s assessment

areas if they have a purpose, mandate or

function of serving the bank’s

assessment area(s). Additionally,

activities that do not have a purpose,

mandate or function of serving a bank’s

assessment area(s) are considered when

evaluating the bank’s performance at the

state level or for the institution overall,

but only if the bank is first determined

to have been responsive to the credit

and community development needs in

its assessment area(s).

162

Banks have indicated that the

standard for being sufficiently

responsive to the needs of their

assessment area(s) is not clearly defined,

and that this creates uncertainty

regarding whether a bank’s activities in

broader areas will be considered for

CRA credit. In addition, stakeholder

feedback suggests that a bank’s physical

presence within an assessment area

enables them to access local community

development opportunities and form

partnerships to expand these

opportunities. For these reasons, most

banks focus their community

development activities within their

branch-based assessment areas, which

may exacerbate CRA hot spots and

deserts, and may make certain banks

less likely to pursue impactful

community development opportunities

that are statewide or regional in nature.

2. Expanding Geographic Areas for

Community Development Activities

a. Eligible States and Territories and

Eligible Regions

As discussed in the Community

Development Test section, the Board is

proposing to allow banks to receive CRA

credit for community development

activities not only within defined

assessment areas, but also within

‘‘eligible states and territories’’ and

‘‘eligible regions.’’ This approach would

build on, clarify, and broaden the

‘‘broader statewide and regional area’’

approach in place today under CRA

guidance, and would complement the

implementation of the community

development financing metric at the

assessment area level.

Under the proposed approach,

qualified community development

activities contained within one

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Q&A §ll.12(h)—7.

164

Such an approach could leverage persistent

poverty county definitions, which are defined in

the Consolidated Appropriations Act of 2012 as any

county that has had 20 percent or more of its

population living in poverty over the past 30 years.

Public Law 112–74, 125 Stat. 786, 887 (2011).

assessment area would receive CRA

credit when evaluating assessment area

performance and would count toward a

bank’s community development

financing metric for the specific

assessment area. Banks could also

receive credit for qualified community

development activities that benefit areas

outside of bank facility-based

assessment area(s) anywhere within a

bank’s eligible states and territories,

defined as any state or territory in

which the bank has at least one facility-

based assessment area. Qualified

activities in each eligible state or

territory that are partially or entirely

outside of a bank’s assessment area(s)

would be considered when assessing a

bank’s performance for state and

institution ratings, as applicable.

Banks could also receive credit for

qualified activities in an ‘‘eligible

region,’’ defined as a multistate or other

regional area that includes at least one

eligible state or territory. As noted in

current guidance, a ‘‘regional area’’ may

be an intrastate area or a multistate area

that includes the financial institution’s

assessment area(s), and that typically

has some geographic, demographic,

and/or economic interdependencies and

may conform to commonly accepted

delineations, such as ‘‘the tri-county

area’’ or the ‘‘mid-Atlantic states.’’

163

Qualified activities in an eligible region

would be considered when evaluating

the bank’s performance for an

institution rating.

The Board believes that this approach

would provide ex ante certainty about

when activities outside of an assessment

area would be considered. This ex ante

certainty could result in investments in

areas that lack financial institutions,

thus helping to alleviate CRA deserts. At

the same time, banks would still have

incentives to meet the needs of their

assessment areas because the

community development financing

metric would include only activities

within each assessment area, and would

inform a bank’s Community

Development Financing Subtest

conclusion. Performance in assessment

areas would also be the foundation for

determining the bank’s state rating for

the Community Development Test.

b. Designated Areas of Need

The Board is considering whether a

bank should receive consideration for

activities outside of its eligible state(s),

territories and regions if the activity is

located in designated areas of need. This

approach would help ensure that

community development activities

outside of a bank’s assessment areas,

eligible states and territories, or eligible

regions, are occurring in areas of highest

need. The Board is exploring the

following criteria for defining areas of

need:

•Economically distressed rural or

metropolitan areas that meet certain

criteria, for example an unemployment

rate that is persistently 1.5 times the

national average or a persistent poverty

rate of 20 percent or more.

164

•Areas where the local benchmark

for the community development

financing metric is below an established

threshold.

•Areas that have low levels of home

mortgage or small business loans as

identified by lending data.

•Areas with limited bank branches

or ATMs.

•Targeted geographies designated by

other federal agencies that exhibit

persistent economic distress, such as:

Federal Native Areas including

Federally Designated Indian

Reservations, Off Reservation Trust

Lands or Alaskan Native Village

Statistical Areas, or Hawaiian Home

Lands; ARC and DRA Areas, which are

areas designated as distressed by,

respectively, the Appalachian Regional

Commission or Delta Regional

Authority; and Colonias areas, which

are low-income communities on the

U.S.-Mexico border as designated by

HUD.

Careful consideration of CRA’s

statutory purpose would be needed in

determining what criteria should be

used to designate areas of need, and

designations would need to be updated

periodically to reflect current data. One

approach would be for the Board to

publish and update a list of designated

areas of need on an annual or biennial

basis. Areas could be removed from the

list if they receive substantial amounts

of community development financing,

and others may be added that have

pressing needs.

Request for Feedback:

Question 68. Will the approach of

considering activities in ‘‘eligible states

and territories’’ and ‘‘eligible regions’’

provide greater certainty and clarity

regarding the consideration of activities

outside of assessment areas, while

maintaining an emphasis on activities

within assessment areas via the

community development financing

metric?

Question 69. Should the Board

expand the geographic areas for

community development activities to

include designated areas of need?

Should activities within designated

areas of need that are also in a bank’s

assessment area(s) or eligible states and

territories be considered particularly

responsive?

Question 70. In addition to the

potential designated areas of need

identified above, are there other areas

that should be designated to encourage

access to credit for underserved or

economically distressed minority

communities?

D. Options To Provide Additional

Certainty About Eligible Activities

The Board is considering options to

improve upfront certainty related to

what community development activities

qualify for consideration. The Board

believes that greater ex ante certainty

will provide stakeholders with

additional transparency about what,

how, and where activities are

considered. Significant ex ante certainty

could be achieved through several

mechanisms, including clarifying

qualifying activities directly in

regulatory language as discussed above.

However, the Board recognizes that

changes to regulatory text alone might

not provide the full upfront certainty

sought by banks and community groups.

Current Approaches to Determining

What Community Development

Activities Qualify. Currently, as part of

their CRA examinations, banks submit

community development activities that

have already been undertaken without

an assurance these activities are eligible.

Previously qualified activities can

frequently provide banks with some

confidence that the same types of

activities are likely to receive

consideration in the future. However,

new, less common, or more complex or

innovative activities might require

examiner judgment and the use of

performance context to determine

whether an activity qualifies for CRA

purposes. For these activities,

stakeholders might know only after an

examination—and after a loan or

investment qualification decision has

been made—whether an activity will

receive CRA credit. The lack of upfront

certainty is a disincentive to undertake

such activities, even if they potentially

have great value to the local community.

Some current processes provide

upfront ‘‘non-binding’’ feedback to

banks on eligibility of certain projects.

For example, the Federal Reserve’s

Investment Connection platform

provides a popular approach to

proactively engage stakeholders on

CRA-eligible community development

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The Federal Reserve Bank of Kansas City

pioneered the Investment Connection concept,

which has been replicated by multiple Reserve

Banks, https://www.kansascityfed.org/community/

investmentconnection.

166

The banking system assets are based on June

30, 2020 FFIEC Call Report data, https://

cdr.ffiec.gov/public/PWS/DownloadBulkData.aspx.

167

12 CFR 228.27(a).

168

12 CFR 228.27(d) and (e).

169

See, e.g., 12 CFR 228.27.

170

12 CFR 228.27(b).

171

12 CFR 228.27(f)(1).

172

12 CFR 228.27(c)(1).

173

12 CFR 228.27(f)(3).

174

12 CFR 228.27(f)(4).

175

Amendments to a CRA strategic plan must

include public participation in the same manner as

when the plan was initially developed and

finalized. 12 CFR 228.27(h).

176

12 CFR 228.27(f)(1)(ii).

177

Id.

178

12 CFR 228.27(e).

financing activities.

165

Operated

through multiple Reserve Banks, the

platform provides a forum for

community-based organizations,

financial institutions, and other funders

to review planned projects that are

deemed to be CRA-eligible. In addition,

Investment Connection provides

website portals to help provide

stakeholders advance transparency on

eligibility of possible investments.

To provide additional upfront

certainty, the Board is exploring two

proposals. The Board requests feedback

on a proposal to publish an illustrative,

non-exhaustive list of activities that

meet requirements for CRA

consideration. The Board also requests

feedback on a proposal to establish a

‘‘pre-approval’’ process to improve

certainty about qualification of

community development activities.

Create an Example List of Eligible

Activities. The Board proposes

publishing an illustrative, non-

exhaustive list of community

development activities that meet the

requirements for CRA consideration.

The list would be illustrative, but not

exhaustive, as to the type and scope of

eligible activities. Stakeholders have

supported providing example activities

as a way to further explain required

standards of the CRA definitions while

retaining definitional standards as the

determinative factor in eligibility for

activities.

Although an illustrative list could

provide greater information on required

CRA criteria, it is important that it not

have the unintended consequence of

dissuading stakeholders from engaging

in innovative activities simply because

they are not included on the list. Some

community organization and industry

stakeholders have supported developing

an illustrative list of eligible activities

through a formal notice and public

comment rulemaking process. However,

alternative, and less burdensome,

approaches for building and

maintaining an example list may also

exist.

Pre-Approval Process. The Board is

considering developing a formal option

for stakeholders to receive feedback in

advance on whether proposed activities

would be considered eligible for CRA

credit. Depending on the design of the

process, it could either provide full

confirmation that a submitted activity

would qualify for consideration,

including a review of transaction terms

and counterparties, or instead provide

information on the requirements

necessary for the activity to garner

consideration during a CRA evaluation.

Request for Feedback:

Question 71. Would an illustrative,

but non-exhaustive, list of CRA eligible

activities provide greater clarity on

activities that count for CRA purposes?

How should such a list be developed

and published, and how frequently

should it be amended?

Question 72. Should a pre-approval

process for community development

activities focus on specific proposed

transactions, or on more general

categories of eligible activities? If more

specific, what information should be

provided about the transactions?

IX. Strategic Plan Evaluation

The Board is considering amending

the strategic plan option to provide

more clarity and transparency about

evaluation standards and where

performance will be assessed. The

Board is also considering how to tailor

the strategic plan option for different

bank business models as well as how to

leverage the internet to facilitate public

engagement in the strategic plan

process. Over the past several years, 48

banks representing six percent of overall

banking system assets opted to submit

strategic plans; of those, five were

wholesale and limited purpose banks,

representing one percent of overall

banking system assets.

166

A. Current Strategic Plan Framework

Currently, the CRA strategic plan

option is available to all types of

banks,

167

although it has been used

mainly by non-traditional banks and

banks that make a substantial portion of

their loans beyond their branch-based

assessment areas. The strategic plan

option is intended to provide banks

with flexibility in meeting their CRA

obligations tailored to community needs

and opportunities as well as their own

capacities, business strategies, and

expertise. Therefore, not all of the

performance tests and standards

described in Regulation BB necessarily

apply to each bank’s strategic plan.

Banks that elect to be examined under

strategic plans have a great deal of

latitude in designing a strategic plan,

but are subject to several key

requirements. They must seek approval

from the Board and solicit community

feedback prior to submitting a strategic

plan for regulatory approval.

168

In

addition, they are required to delineate

assessment areas in the same manner as

traditional banks,

169

and large banks are

obligated to report relevant lending

data.

170

Strategic plans also offer banks

flexibility in various areas. Although

banks must include measurable goals for

helping to meet the credit needs of each

assessment area, particularly the needs

of LMI census tracts and LMI

individuals, they have flexibility in

setting these goals.

171

Plan terms can be

up to five years in length as long as any

multi-year plan includes annual goals

that are measurable.

172

Banks are

required to include goals for

‘‘satisfactory’’ performance, and they

may opt to provide goals for

‘‘outstanding’’ performance as well.

173

A bank also may provide in the plan

that if it substantially fails to meet its

goals for a ‘‘satisfactory’’ rating, the

bank can be examined under the

standard examination procedures.

174

In

addition, a bank may request the Board

to approve an amendment to its strategic

plan if there is a material change in

circumstances.

175

Regulation BB states that a bank’s

plan shall address the lending test, the

investment test, and the service test and

shall emphasize lending and lending-

related activities unless the bank is a

designated wholesale or limited purpose

bank, in which case the plan would

include only community development

loans, investments, and services.

176

The

regulation also provides flexibility for a

bank to choose a different emphasis as

long as the change is responsive to the

characteristics and credit needs of its

assessment area(s) and takes into

consideration public comment and the

bank’s capacity and constraints, product

offerings, and business strategy.

177

When reviewing a strategic plan, the

Board considers the public’s

involvement in formulating the plan,

any written public comments on the

plan, and the bank’s response to any

public comments.

178

A bank’s

engagement with its community is vital

to the strategic plan process to develop

the requisite information about

community needs. Criteria for

evaluating strategic plan goals include

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12 CFR 228.27(g)(3).

180

For LMI, rural, and other areas without

broadband service, the Board is considering options

to provide access to bank’s CRA strategic plans.

181

See Q&A §ll.27(c)—1.

182

Q&A §ll.29(b)—2.

183

This option would be an alternative to

defining assessment areas based on branches,

instead using deposit or lending data. Deposit-based

and lending-based assessment areas are discussed

in more detail in Section III. These assessment areas

would need to consist of at least whole census

tracts, not reflect illegal discrimination, and not

arbitrarily exclude LMI census tracts.

the extent and breadth of lending or

lending-related activities; the amount

and innovativeness, complexity, and

responsiveness of qualified investments;

the availability and effectiveness of the

bank’s retail banking services; and the

extent and innovativeness of the bank’s

community development services.

179

B. Stakeholder Feedback on Strategic

Plan Approach

Both banks and community

organizations have expressed support

for the strategic plan option, but banks

have asked for more flexibility in

developing goals and a streamlined

strategic plan process. Stakeholder

feedback also has emphasized the need

to address the increased use of mobile

and online banking, which allows banks

to offer products and services in areas

far from their branch footprint. While

there is broad support for community

input into the strategic plan process,

some have requested that the role of

community input be clarified, especially

for banks whose strategic plan covers a

broad geographic area, including

multiple assessment areas or the entire

nation.

C. Updating the Strategic Plan

Framework

The Board is considering potential

revisions to the current strategic plan

framework to facilitate effective use of

strategic plans, including the options

discussed below.

1. Updating the Public Input Process for

Strategic Plans

Communication between a bank and

the public allows for an exchange of

information about community needs

and the bank’s business model and areas

of expertise, which enables banks to

develop responsive strategic plan goals

that reflect the bank’s capacity,

constraints, and community needs.

The Board is considering three

proposals to improve the public input

process. First, banks could be required

to post the strategic plan on their

website, the Board’s website, or both, in

place of the current newspaper

publication requirement.

180

Second, the

Board is considering codifying in

regulation the current guidance that it

will consult with banks regarding

procedural requirements, although it

would not include commenting on the

merits of a proposed strategic plan or on

the adequacy of measurable goals.

181

Finally, some industry stakeholders

have suggested that strategic plan

requirements should clarify that public

comments help a bank to identify

community needs and priorities, give a

bank the opportunity to develop

responsive products and services, and

demonstrate the ways a bank has met

those needs. Industry stakeholders also

suggest that an amended regulation

should codify current guidance that

banks are not required to enter into

community benefit agreements as a

condition of developing strategic

plans.

182

2. Increased Flexibility on Assessment

Areas and Evaluation Method for

Strategic Plans

The Board is considering updating

where banks are assessed for

performance under the strategic plan

framework. Currently, banks are

required to delineate assessment areas

in the same manner as traditional banks.

The Board is considering allowing

banks greater flexibility in defining

assessment areas through a strategic

plan, while also providing greater

transparency and certainty about the

process. The Board also seeks feedback

on providing an option of using metrics

to evaluate performance in those

assessment areas, rather than the bank

proposing measurable goals.

Defining Assessment Areas in

Strategic Plans More Broadly than a

Branch Network. The Board is

considering allowing a bank choosing

the strategic plan approach to delineate

assessment area(s) in addition to its

branch-based assessment area(s) that

would capture areas in which the bank

has a significant proportion of its

business and that align with the bank’s

capacity and constraints, product

offerings, and business strategy.

183

For

each assessment area a bank would need

to define goals and engage in the same

process of seeking community feedback

and regulatory approval. Alternatively,

the Board is seeking feedback on

whether banks that have a significant

business footprint beyond their branch-

based assessment areas should be

required to define associated assessment

areas, as opposed to allowing banks to

define additional assessment areas

voluntarily.

Leveraging Metrics-Based Approaches

to Evaluation. The Board is also

considering enabling banks electing to

prepare a strategic plan to have

flexibility in leveraging retail lending

and community development financing

metrics as part of the bank’s

performance evaluation. This option

could provide banks with greater

certainty in how they will be evaluated

by opting for the metrics-based

approaches described in Sections V

(Retail Test) and VII (Community

Development Test), as appropriate based

on a bank’s size and business model.

3. Flexibility in Setting Plan Goals

Regulation BB sets forth general

expectations that a strategic plan

address the lending, investment, and

services performance categories,

emphasizing lending but with flexibility

to choose a different emphasis if it is

responsive to the particular

characteristics and credit needs of the

bank’s assessment area(s). In practice,

the Board has exercised flexibility in the

types of goals that banks may choose

based on business strategy, expertise,

capacity, constraints, public

involvement, and whether the goals are

responsive to assessment area

characteristics and credit needs. The

Board is considering whether to revise

the strategic plan regulatory provisions

to codify the flexibility in setting goals

that has been allowed in practice.

4. Strategic Plan Amendments

As noted earlier, Regulation BB states

that a bank may request its banking

agency approve an amendment to its

strategic plan on grounds that there has

been a material change in

circumstances. The Board seeks to

provide greater clarity regarding what

constitutes a material change that

should trigger amendments to strategic

plans.

5. Options for Streamlining the Strategic

Plan Approval Process

Some stakeholders have noted that

the strategic plan procedures could be

further streamlined to make the option

more appealing to a larger number of

non-traditional banks. The Board is

considering developing an electronic

template with illustrative instructions to

make it more straightforward for banks

to engage in the strategic plan request

and approval process. These changes

would be procedural and would not

require regulatory changes.

Request for Feedback:

Question 73. In fulfilling the

requirement to share CRA strategic

plans with the public to ensure

transparency, should banks be required

to publish them on the regulatory

agency’s website, their own website, or

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184

12 U.S.C. 2906(b), implemented by 12 CFR

228.28(a). The narrative descriptions of the ratings

for performance under each evaluation method are

in Appendix A to Regulation BB, 12 CFR part 228.

185

12 U.S.C. 2906(d).

186

Ratings are not required at the assessment area

level. Therefore, examiners provide conclusions

about a bank’s performance at the assessment area

level. If a bank operates in just one assessment area,

however, the bank’s institution-level rating is

equivalent to the performance conclusion within

that assessment area.

187

See Q&A §ll.28(a)—3.

188

Id.

189

Q&A Appendix A to 12 CFR 228—1.

190

See, e.g., CA Letter 14–2.

both? Would it be helpful to clarify the

type of consultation banks could engage

in with the Board for a strategic plan?

Question 74. How should banks

demonstrate that they have had

meaningful engagement with their

community in developing their plan,

and once the plan is completed?

Question 75. In providing greater

flexibility for banks to delineate

additional assessment areas through

CRA strategic plans, are there new

criteria that should be required to

prevent redlining?

Question 76. Would guidelines

regarding what constitutes a material

change provide more clarity as to when

a bank should amend their strategic

plan?

Question 77. Would a template with

illustrative instructions be helpful in

streamlining the strategic plan approval

process?

X. Ratings

The Board is proposing an approach

to ratings that is grounded in

performance in a bank’s local

communities. This approach would

provide a transparent and consistent

process for considering assessment area

performance conclusions for the Retail

Test and the Community Development

Test when assigning ratings for each

state and multistate MSA, as applicable,

and for the institution overall. For large

banks subject to the Community

Development Test, the proposed

approach also incorporates an

assessment of community development

activities outside of assessment areas in

determining the overall state and

institution ratings.

The Board recognizes that CRA and

fair lending responsibilities are

mutually reinforcing. As such, the

Board would continue to consider fair

lending and illegal credit violations in

determining overall CRA ratings for all

institutions. Finally, the Board proposes

to encourage activities involving MDIs,

women-owned financial institutions,

and low-income credit unions by

making retail and community

development activities with these

institutions a factor in achieving an

‘‘outstanding’’ Retail Test or Community

Development Test rating. Additionally,

small banks would remain under the

current CRA framework and would have

the ability to opt into the Retail Lending

Subtest and the proposed ratings

approach.

A. Current Process for Developing

Ratings

Consistent with the CRA statute,

Regulation BB provides that a bank is

assigned an institution rating of

‘‘outstanding,’’ ‘‘satisfactory,’’ ‘‘needs to

improve,’’ or ‘‘substantial

noncompliance’’ in connection with a

CRA examination.

184

Ratings are also

required for a bank’s performance in

each state in which the institution

maintains one or more branches, and for

each multistate MSA for those

institutions that have branches in two or

more states within a multistate MSA.

185

As a first step to assigning an overall

institution rating, examiners assign state

and multistate MSA ratings for each

applicable performance test (lending,

investment and service tests) based on

the performance ‘‘conclusions’’ assigned

for each assessment area within the state

or multistate MSA.

186

Overall state-level

or multistate MSA performance test

ratings are assigned by combining the

performance test ratings within each

state or multistate MSA. Institution-

level performance test ratings are

derived from the state and multistate

MSA performance test ratings, which

are combined for the overall institution

rating.

With one notable exception, the rating

scale used for performance test ratings

mirrors that of the statutory institution-

level ratings—‘‘outstanding,’’

‘‘satisfactory,’’ ‘‘needs to improve,’’ or

‘‘substantial noncompliance.’’ For large

banks, however, the ‘‘satisfactory’’

rating for each performance test is split

into ‘‘high satisfactory’’ and ‘‘low

satisfactory’’ at the state, multistate

MSA and institution level. For the

overall institution rating for large banks,

though, the ‘‘satisfactory’’ rating is not

split into ‘‘high satisfactory’’ and ‘‘low

satisfactory.’’

187

Under existing procedures for large

banks, examiners use a rating scale in

the Interagency Questions and Answers

that assigns points to each test and each

rating category, and adds those together

to determine the overall institution

rating.

188

With the exception of this

rating scale, the process of combining

performance test ratings to determine

the state, multistate MSA or institution

ratings relies primarily on examiner

judgment, guided by quantitative and

qualitative factors outlined in the

regulation. There is otherwise not a

strictly defined process for assessing

how different components of each

performance test are combined or how

performance conclusions or ratings

should be weighted to determine overall

ratings. The current rating system is

designed to be flexible; for example,

exceptionally strong performance in

some aspects of a particular rating

profile may compensate for weak

performance in others.

189

Current examination procedures also

allow for assessment areas to be

evaluated either for full-scope or

limited-scope review. Full-scope

reviews employ both quantitative and

qualitative factors, while limited-scope

reviews are assessed only quantitatively

and tend to have less weight in their

contribution to the overall state,

multistate MSA, or institution rating.

Examiners select assessment areas for

full-scope review based on a number of

factors, such as community needs and

opportunities, comments from

community groups and the public

regarding the institution’s performance,

and any apparent anomalies in the

reported CRA and HMDA data for any

particular assessment areas, among

other factors.

190

Under current examination

procedures, the Board uses a fact-

specific review to determine whether an

overall institution-level CRA rating

should be downgraded due to

discriminatory and other illegal credit

practices. Currently, the Board

considers the nature, extent, and

strength of the evidence of any

discriminatory or other illegal credit

practices, as well as any policies and

procedures in place, or lack thereof, to

prevent these kinds of practices, and

any corrective action that the bank has

taken or has committed to take.

B. Stakeholder Feedback on Ratings

Stakeholders have consistently stated

that CRA ratings should reflect a bank’s

performance in the local communities

they serve. Both banks and community

organizations have expressed concern

that the current ratings process is

subjective and lacks transparency about

the levels of performance associated

with different ratings. Both have also

suggested that more transparency is

needed regarding the selection of

evaluated products and the weighting of

products and tests when rating a bank.

Many community organizations have

stated that the ratings process should be

reformed to add more rigor and stricter

standards. Others have suggested that

the current rating system using the

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12 U.S.C. 2906.

192

For small banks that opt in to the revised

framework, the Board is considering two options to

reduce the burden of using deposits data to weight

assessment areas: either using FDIC SOD data that

allocates deposits to branches, or removing the

deposit prong and only weighting assessment areas

based on the percentage of a bank’s retail lending

in each assessment area. For example, if a small

bank’s assessment area were weighted solely based

on retail lending, then a bank with 20 percent of

its retail lending in an assessment area would have

a weight of 20 percent for that assessment area.

193

This would, in effect, modify current

guidance, which provides that a bank’s overall

‘‘needs to improve’’ rating can be downgraded

when the bank fails to improve performance by the

next evaluation. See Q&A §ll.21(b)(5)—1. Rather

than considering the downgrade on a bank’s overall

evaluation, the Board is considering applying the

downgrade at the assessment area level.

statutory ratings does not provide

enough detail to gauge a bank’s true

performance, and that ratings should

better differentiate performance to help

the public understand a bank’s true

commitment to its community.

C. Increasing Transparency by

Grounding Ratings in Assessment Area

Conclusions

The Board proposes revisions to the

current CRA ratings framework to

provide greater transparency, clarity and

consistency in the assignment of ratings.

The foundation for the proposed

approach to ratings is based on a

weighted average of assessment area

conclusions. To increase consistency

and reflect a more comprehensive

assessment of a bank’s overall

performance, the Board is proposing to

eliminate the distinction between full-

scope and limited-scope assessment

areas. Ratings would continue to be

assigned for the institution, as well as

for each state and multistate MSA where

the bank has a presence, as required by

the statute.

191

Additionally, the Board

proposes using the same ratings for

banks of all sizes.

Weighted Average Approach. The

Board is proposing to apply a weighted

average approach to combining

assessment area conclusions. The

weight applied to each assessment area

would average the percentage of a

bank’s deposits from that assessment

area and the percentage of a bank’s

dollars of loans in that assessment

area.

192

For example, for a bank with 30

percent of its deposits in an assessment

area and 20 percent of its retail lending

in an assessment area, the assessment

area weight would be 25 percent.

This use of both deposits and loans to

weight assessment areas (as well as

states and multistate MSAs, as

applicable) would help to ensure that

ratings accurately reflect performance in

all markets, including those where

lending volume is low relative to

deposits. Compared to the current

method, where limited scope

assessment areas have less impact on

the overall rating, the proposed

approach would give full consideration

to performance in each assessment area,

proportional to a bank’s lending level

and capacity to lend.

In order to combine assessment area

conclusions in a manner consistent with

these weights, examiners would first

convert a Retail Test conclusion or

Community Development Test

conclusion to a score in each assessment

area according to the following scale:

Outstanding = 3, Satisfactory = 2, Needs

to Improve = 1, and Substantial Non-

Compliance = 0. Examiners would then

take the weighted average of these

assessment area scores, using the

assessment area weights described

above, to produce a state, multistate

MSA or institution score. These

aggregated weighted average scores

would be used as the foundation for a

bank’s ratings. The underlying weights

for each assessment area could be made

available in the performance

evaluations, making the ratings process

transparent.

Inclusive of All Assessment Areas.

The Board is considering several

options to ensure that all assessment

areas, including smaller rural

assessment areas, are appropriately

factored into the Retail and Community

Development Test ratings. First, as

discussed above, the Board is

considering weighting performance in

all assessment areas based on deposits

and loans to determine state and

institution ratings. Second, the Board is

considering limiting how high an

overall rating can be for the evaluated

state or multistate MSA if there is a

pattern of weaker performance in

multiple assessment areas. For example,

the state rating could not be higher than

the rating achieved by a certain

percentage of the number of assessment

areas for a bank that has several

assessment areas in a state. Third, the

Board is considering downgrading a

bank’s assessment area conclusion to

‘‘substantial non-compliance’’ if the

bank’s performance in that assessment

area was ‘‘needs to improve’’ at the prior

examination and the bank showed no

appreciable improvement (and the

performance context does not explain

why).

193

The second and third

stipulations in particular would be

intended to ensure that banks do not

count on strong performance in a few

assessment areas to offset persistently

weak performance in numerous small

assessment areas in the overall rating of

a state, multistate MSA (as applicable),

or institution.

Consistency in Ratings Levels. The

Board is proposing to use the four

statutory ratings for banks of all sizes—

‘‘outstanding,’’ ’’satisfactory,’’ ‘‘needs to

improve,’’ or ‘‘substantial

noncompliance.’’ This revision would

eliminate the ‘‘high’’ and ‘‘low’’

distinctions for ‘‘satisfactory’’

performance of large banks at the state

and multistate MSA levels. While using

both the ‘‘high satisfactory’’ and ‘‘low

satisfactory’’ ratings can help to

differentiate performance, the Board

anticipates that a more transparent and

metrics-based approach would help

provide a more detailed perspective on

performance.

Request for Feedback:

Question 78. Would eliminating

limited-scope assessment area

examinations and using the assessment

area weighted average approach provide

greater transparency and give a more

complete evaluation of a bank’s CRA

performance?

Question 79. For a bank with multiple

assessment areas in a state or multistate

MSA, should the Board limit how high

a rating can be for the state or multistate

MSA if there is a pattern of persistently

weaker performance in multiple

assessment areas?

Question 80. Barring legitimate

performance context reasons, should a

‘‘needs to improve’’ conclusion for an

assessment area be downgraded to

‘‘substantial non-compliance’’ if there is

no appreciable improvement at the next

examination?

Question 81. Should large bank

ratings be simplified by eliminating the

distinction between ‘‘high’’ and ‘‘low’’

satisfactory ratings in favor of a single

‘‘satisfactory’’ rating for all banks?

D. State, Multistate MSA and Institution

Ratings for the Retail Test and

Community Development Test

The Board is proposing a ratings

approach that builds on the weighted

average of the bank’s assessment area

performance on the Retail Test and the

Community Development Test, as

applicable. The proposed approach

would use the 0–3 scale discussed

above to translate performance scores

into state, multistate MSA, and

institution ratings.

This approach would tailor how

performance ratings are assigned based

on bank size and business model. Small

banks opting into the revised framework

would be rated on the Retail Lending

Subtest, and large banks would be rated

based on all four subtests under the

Retail Test and Community

Development Test. Wholesale and

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194

12 U.S.C. 2906(b) and (d).

limited-purpose banks would be rated

on the Community Development Test

alone.

1. Retail Test Ratings

a. Retail Test Conclusions in

Assessment Areas

The Board is proposing an approach

for developing one Retail Test

conclusion at the assessment area level

that would provide more consistency

and certainty in assigning assessment

area conclusions, while accounting for

performance context factors. Small

banks opting into the revised framework

would receive a Retail Lending Subtest

conclusion in each assessment area,

which would also serve as their overall

Retail Test conclusion in each

assessment area. For large banks

evaluated under both the Retail Lending

Subtest and Retail Services Subtest, the

Board proposes using the below matrix

to standardize how examiners combine

these two conclusions into a single

Retail Test conclusion in each

assessment area.

T

ABLE

6—R

ETAIL

T

EST

A

SSESSMENT

A

REA

C

ONCLUSIONS

Retail services subtest conclusion

Outstanding Satisfactory Needs to improve Substantial noncompliance

Retail Lending Subtest

Conclusion:

Outstanding ................ Outstanding ....................... Outstanding ....................... Satisfactory ....................... Satisfactory or Needs to

Improve.

Satisfactory ................. Outstanding or Satisfactory Satisfactory ....................... Satisfactory or Needs to

Improve. Needs to Improve.

Needs to Improve ....... Needs to Improve ............. Needs to Improve ............. Needs to Improve ............. Needs to Improve or Sub-

stantial Noncompliance.

Substantial Non-

compliance.Substantial Noncompliance Substantial Noncompliance Substantial Noncompliance Substantial Noncompli-

ance.

Given CRA’s traditional emphasis on

lending, the Board is proposing to

weight the Retail Lending Subtest

conclusion more heavily than the Retail

Services Subtest conclusion in

determining the overall Retail Test

assessment area conclusion for large

banks. Using this standardized

approach, most combinations of subtest

conclusions would provide examiners

with only one option for the overall

Retail Test conclusion. However, in

cases where the overall Retail Test

conclusion could be one of two options

based on the level of performance for

each subtest and performance context

factors, examiner judgment would be

required. In these cases, the specific

factors that informed the examiner’s

decision would need to be clearly

articulated within the performance

evaluation.

b. State, Multistate MSA, and Institution

Retail Test Ratings

As noted above, the CRA statute

requires a separate rating for each state

and multistate MSA, and for the

institution overall.

194

To develop the

state, multistate MSA, and institution

ratings for the Retail Test, the Board is

proposing to aggregate a bank’s

assessment area performance using the

weighted average approach described

above. This approach would take a

weighted average of the assessment area

Retail Test scores to yield (as

applicable) a Retail Test state score,

Retail Test multistate MSA score, or

Retail Test institution score. These

scores in turn would translate to one of

the four ratings by rounding.

The below example shows how this

weighting would work for the Retail

Test for a state-level rating where a bank

had two assessment areas in a state:

Assessment Area 1: ‘‘Satisfactory’’

performance and weight of 25 percent

2 * 0.25 = 0.5

Assessment Area 2: ‘‘Outstanding’’

performance and weight of 75 percent

3 * 0.75 = 2.25

Retail Test

State Score: 0.5 + 2.25 = 2.75 or

‘‘outstanding’’

The Board is considering aggregating

assessment area conclusions to calculate

the Retail Test institution rating as well,

rather than aggregating all Retail Test

state ratings. With stipulations in place

to ensure that all assessment areas,

including smaller rural assessment

areas, are appropriately factored into

ratings (as discussed above), calculating

the Retail Test institution rating based

on assessment area conclusions could

encourage banks to maintain a focus on

retail activities in all of their assessment

areas and not just the largest assessment

areas in each state.

Finally, to promote additional retail

lending activities in Indian Country, the

Board is proposing to make retail

lending activities in Indian Country

(both inside and outside of a bank’s

assessment area) eligible for CRA

consideration. Activities inside a bank’s

assessment area(s) would be considered

when determining assessment area

conclusions; activities outside of a

bank’s assessment area(s) would be

evaluated qualitatively, and could be

considered as a possible enhancement

to a bank’s Retail Test state or

institution rating.

2. Community Development Test

Ratings

a. Community Development Test

Conclusions in Assessment Areas

Large retail banks and wholesale and

limited purpose banks would receive

separate conclusions for the Community

Development Financing Subtest and

Community Development Services

Subtest for each assessment area. To

provide greater certainty and

transparency in assigning Community

Development Test assessment area

conclusions, a matrix, such as the one

presented in Table 7, would be provided

to standardize how examiners would

combine the two conclusions into a

single Community Development Test

conclusion in each assessment area.

This would provide transparency to

local communities about a bank’s

overall community development

performance within their assessment

area.

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The proposed approach would weight states in

a similar way to weighting assessment areas, based

on an average of the percentage of a bank’s deposits

inside each state and the percentage of a bank’s

retail lending in each state.

196

See Section VIII.C.2

T

ABLE

7—C

OMMUNITY

D

EVELOPMENT

T

EST

A

SSESSMENT

A

REA

C

ONCLUSIONS

Community development services subtest conclusion

Outstanding Satisfactory Needs to improve Substantial noncompliance

Community Development

Financing Subtest Con-

clusion:

Outstanding ................ Outstanding ....................... Outstanding ....................... Satisfactory ....................... Satisfactory or Needs to

Improve.

Satisfactory ................. Outstanding or Satisfactory Satisfactory ....................... Satisfactory or Needs to

Improve. Needs to Improve.

Needs to Improve ....... Satisfactory or Needs to

Improve. Needs to Improve ............. Needs to Improve ............. Substantial Noncompli-

ance.

Substantial Non-

compliance.Needs to Improve or Sub-

stantial Noncompliance. Needs to Improve or Sub-

stantial Noncompliance. Substantial Noncompliance Substantial Noncompli-

ance.

Using this standardized approach

would allow an examiner to determine

how to weight the Community

Development Financing Subtest

conclusion and the Community

Development Services Subtest

conclusion, with some combinations

resulting in a single conclusion option.

Where the overall Community

Development Test conclusion could be

one of two options, examiners would

consider the level of performance for

each subtest and take into account

performance context factors, including

the relative need for community

development financing and services in

the assessment area. In these cases, the

specific factors that informed the

examiner’s decision would need to be

clearly articulated within the

performance evaluation.

b. State and Multistate MSA Ratings for

the Community Development Test

To develop the state and multistate

MSA ratings for the Community

Development Test, the proposed

approach would aggregate a bank’s

assessment area performance for the

Community Development Test using the

weighted average approach described

above. This would result in a

Community Development Test state

score or Community Development Test

multistate MSA score. After calculating

these scores, the examiner would need

to take into account community

development activities, if any, outside

of a bank’s assessment area(s) but within

the relevant state or multistate MSA.

The Board is proposing to create

adjusted state scores or multistate MSA

scores when an examiner determines

that a bank’s community development

activities outside of its assessment

area(s), but within the respective state or

multistate MSA, merit an increase in the

bank’s Community Development Test

score. After factoring in this adjustment

for any outside assessment area activity,

the adjusted score would then be

rounded to the nearest whole number to

assign a state or multistate MSA

Community Development Test rating.

The specific factors that informed the

examiner’s decision to increase the

score would be clearly articulated

within the performance evaluation. The

Board is considering what standards

should be developed to assist examiners

in determining whether to increase

these scores and, if so, by how much.

c. Institution Ratings for the Community

Development Test

The Board proposes to derive a bank’s

Community Development Test

institution score by using a weighted

average of the adjusted state scores and

multistate MSA scores (as applicable),

rather than using assessment area

conclusions.

195

Using state and

multistate MSA scores would reflect

statewide activities, if any, in addition

to the conclusions for assessment areas

in the state or multistate MSA.

The Board is considering how to

incorporate the volume and

responsiveness of community

development activities (both community

development financing and community

development services) not previously

counted at the assessment area, state or

multistate MSA levels.

196

These

activities could be reviewed

qualitatively in addition to the weighted

average calculation of state- and

multistate MSA-level performance, to

determine the appropriate increase for

an adjusted institution Community

Development Test score. This score

would then be rounded up or down to

the nearest whole number to produce

the institution level Community

Development Test rating.

d. Consistency in Evaluating

Community Development Activities

Outside of Assessment Areas

The Board is exploring options to

provide more consistency in evaluating

community development activities

outside of a bank’s assessment area(s),

which would be considered for the

state, multistate MSA (as applicable),

and institution Community

Development Test ratings. For state

ratings, one approach could be the use

of a statewide community development

financing metric. Similar to the

community development financing

metric for an assessment area, a

statewide community development

financing metric would compare the

total dollar amount of a bank’s

qualifying community development

loans and investments in a state to total

deposits from all of the bank’s

assessment areas in the state. A

statewide community development

financing metric could provide more

consistency to the evaluation of

community development financing

activities outside of assessment areas.

A second option for evaluating

community development activities

outside of a bank’s assessment area(s)

would be the use of an impact score.

Examiners could use bank-provided

information along with a review of

performance context to determine an

impact score for activities outside of the

bank’s assessment area(s). The impact

score could then be incorporated into

the Community Development Test

rating for the state, multistate MSA (as

applicable), or the institution. The

impact score and the basis for it would

be stated in the performance evaluation,

which would increase transparency in

the evaluation process by clarifying how

activities outside of assessment areas are

factored in to the overall state,

multistate MSA, or institution ratings.

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E. Overall Ratings for Large Retail Banks

The Board is considering how to

weight consistently the Retail Test and

Community Development Test to

determine overall ratings at the state,

multistate MSA, and institution levels

for large retail banks. One option is to

take a weighted average of the Retail

Test institution score and the

Community Development Test adjusted

institution score, assigning a 60 percent

weight to the Retail Test and a 40

percent weight to the Community

Development Test to reflect the

traditional emphasis on retail activities

as the most significant aspect of CRA

performance. This would result in an

overall institution score, which would

be rounded up or down to the nearest

whole number to produce the

institution’s overall CRA rating.

F. Overall State, Multistate MSA, and

Institution Ratings for Small Banks

The Board is considering basing the

overall state, multistate MSA, and

institution ratings for small banks on the

Retail Lending Subtest, for those opting

into the metrics-based approach. Small

banks would not be subject to the Retail

Services Subtest or the Community

Development Test. Consistent with the

current Regulation BB, small banks

could receive an overall ‘‘outstanding’’

rating based solely on the Retail

Lending Subtest. Nonetheless, for those

small banks who choose to receive an

evaluation of their retail services,

community development loans,

qualified investments, or community

development services, including

volunteer activities, the Board would

rely on a qualitative review of the

activities and examiner judgment to

determine whether a ratings

enhancement is warranted.

The Board is contemplating two

options for incorporating community

development activities and retail

services into the small bank overall

institution rating at the bank’s request.

One approach, similar to current

procedures, would be that these

activities could be considered only to

elevate a ‘‘satisfactory’’ rating for the

retail lending test to ‘‘outstanding.’’ This

approach also maintains a primary

emphasis on retail lending within the

CRA evaluation.

A second option is to use community

development activities and retail

services to augment performance at any

level. For instance, a bank that received

a rating below ‘‘satisfactory’’ for the

Retail Lending Subtest could request a

review of community development

activities and retail services as a

possible enhancement to achieve a

‘‘satisfactory’’ rating. Taking this

approach would put more emphasis on

the full range of activities that small

banks engage in to meet community

needs. The Board considers that this

approach should apply only to small

banks that serve primarily rural areas in

order to reflect the particular

importance of volunteer and community

development financing activities

provided by community banks in rural

areas in advancing economic and

community development and

strengthening the capacity of

community and civic organizations.

Alternatively, this option could be

limited to small banks with only a small

number of assessment areas or an asset

size lower than that used to define a

small bank.

G. Overall Ratings for Wholesale

Limited Purpose Banks

Consistent with current practices, the

overall state, multistate MSA and

institution ratings for wholesale and

limited-purpose banks would be based

solely on the Community Development

Test.

Request for Feedback:

Question 82. Does the use of a

standardized approach, such as the

weighted average approach and matrices

presented above, increase transparency

in developing the Retail and

Community Development Test

assessment area conclusions? Should

examiners have discretion to adjust the

weighting of the Retail and Community

Development subtests in deriving

assessment area conclusions?

Question 83. For large banks, is the

proposed approach sufficiently

transparent for combining and

weighting the Retail Test and

Community Development Test scores to

derive the overall rating at the state and

institution levels?

Question 84. Should the adjusted

score approach be used to incorporate

out-of-assessment area community

development activities into state and

institution ratings? What other options

should the Board consider?

Question 85. Would the use of either

the statewide community development

financing metric or an impact score

provide more transparency in the

evaluation of activities outside of

assessment areas? What options should

the Board consider to consistently

weight outside assessment area

activities when deriving overall state or

institution ratings for the Community

Development Test?

Question 86. For small banks, should

community development and retail

services activities augment only

‘‘satisfactory’’ performance, or should

they augment performance at any level,

and if at any level, should enhancement

be limited to small institutions that

serve primarily rural areas, or small

banks with a few assessment areas or

below a certain asset threshold?

H. Fair Lending and Other Illegal Credit

Practices

As noted in the Background section,

the CRA was enacted along with several

other important statutes that are

mutually reinforcing civil rights laws

designed to address systemic inequities

in access to credit. Discrimination and

illegal credit practices undermine the

ability of creditworthy applicants to

obtain loans and are thus seen as

inconsistent with a bank’s affirmative

obligation to meet the entire

community’s credit needs. Accordingly,

discrimination and illegal credit

practices negatively impact an

institution’s CRA evaluation. The Board

anticipates that in any revised CRA

ratings framework, a bank’s CRA

performance would be adversely

affected by evidence of discriminatory

or other illegal credit practices by the

bank in any geography or by any

affiliate whose loans have been

considered as part of the bank’s lending

performance in any assessment area. If

examiners determine that a bank has

engaged in discriminatory or other

illegal credit practices, the Board

anticipates that, if warranted, a ratings

downgrade could occur when rating the

institution overall, similar to current

practices and consistent with Regulation

BB. This subsection discusses revisions

to the criteria considered in determining

the impact of fair lending and other

illegal credit practices on a bank’s

overall CRA rating, and revisions to

examples of violations that are

inconsistent with helping to meet

community credit needs. These

revisions reflect updates to the Uniform

Interagency Consumer Compliance

Rating System, as well as relatively

recently enacted laws and regulations.

1. Effect of Fair Lending and Other

Illegal Credit Practices on a CRA Rating

Currently, in determining the effect of

fair lending and other illegal credit

practices violations on a bank’s assigned

rating, the banking agencies consider

the nature, extent, and strength of the

evidence of the practices; the policies

and procedures that the bank (or

affiliate, as applicable) has in place to

prevent the practices; any corrective

action that the bank (or affiliate, as

applicable) has taken or has committed

to take, including voluntary corrective

action resulting from self-assessment;

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197

12 CFR 228.28(c)(2).

198

See FFIEC, ‘‘FFIEC Issues Uniform Consumer

Compliance Rating System’’ (Nov. 7, 2016), https://

www.ffiec.gov/press/pr110716.htm.

199

12 CFR 228.28(c).

200

15 U.S.C. 1601–02, 1639–41.

201

15 U.S.C. 45(a)(1).

202

12 U.S.C. 2607.

203

15 U.S.C. 1635.

204

15 U.S.C. 1681 et seq.

205

10 U.S.C. 987 et seq.

206

50 U.S.C. 3901 et seq.

207

12 U.S.C. 5531.

and any other relevant information.

197

These criteria were put in place at a

time when the rating system for

consumer compliance examinations

placed greater emphasis on transaction

testing rather than the adequacy of an

institution’s consumer compliance

management system in preventing

consumer harm. In 2016, the FFIEC

agencies revised the Consumer

Compliance Rating System to focus

more broadly on an institution’s

commitment to consumer protection.

198

Accordingly, the Board is considering

updating the criteria for determining the

effect of evidence of discriminatory or

other illegal credit practices to be

consistent with the updated Consumer

Compliance rating system.

Under a modernized Regulation BB,

the Board could determine the effect of

evidence of discrimination and other

illegal credit practices on a bank’s

assigned CRA rating based on the root

cause or causes of any violations of law,

the severity of any consumer harm

resulting from violations, the duration

of time over which the violations

occurred, and the pervasiveness of the

violations. In this way, the criteria to

determine whether a CRA downgrade is

warranted would be aligned with the

Uniform Interagency Consumer

Compliance Ratings System. In addition

to the root cause, severity, duration, and

pervasiveness of violations, examiners

would also consider the degree to which

the financial institution establishes an

effective compliance management

system across the institution to self-

identify risks and to take the necessary

actions to reduce the risk of non-

compliance and consumer harm. All

consumer compliance violations would

be considered during a CRA

examination, although some might not

lead to a CRA rating downgrade.

2. Examples of Fair Lending and Other

Illegal Credit Practices

Currently, the Board considers

evidence of discriminatory or other

credit practices that violate an

applicable law or regulation

199

including, but not limited to:

•Discrimination against applicants

on a prohibited basis in violation, for

example, of ECOA or the FHA;

•Violations of the Home Ownership

and Equity Protection Act;

200

•Violations of section 5 of the

Federal Trade Commission Act;

201

•Violations of section 8 of the Real

Estate Settlement Procedures Act;

202

•Violations of the Truth in Lending

Act provisions regarding a consumer’s

right of rescission;

203

and

•Violations of the Fair Credit

Reporting Act.

204

The Board is considering amending

Regulation BB to include violations of

the Military Lending Act,

205

the

Servicemembers Civil Relief Act,

206

as

well as the prohibition against unfair,

deceptive, or abusive acts or practices

(UDAAP),

207

because the Board views

violations of these laws as inconsistent

with helping to meet community credit

needs. It is important to note that this

does not represent a substantive change

to current examination procedures,

since the included list of applicable

laws, rules, and regulations is

illustrative, and not exhaustive, and

violations of these laws and regulations

are currently considered in finalizing a

bank’s CRA rating. Nonetheless, the

Board believes adding these laws to the

list would provide greater clarity.

Request for Feedback:

Question 87. Should the Board

specify in Regulation BB that violations

of the Military Lending Act, the

Servicemembers Civil Relief Act, and

UDAAP are considered when reviewing

discriminatory or other illegal credit

practices to determine CRA ratings? Are

there other laws or practices that the

Board should take into account in

assessing evidence of discriminatory or

other illegal credit practices?

I. Consideration of ‘‘Outstanding’’ for

Impactful Support to Minority

Depository Institutions, Women-Owned

Financial Institutions, and Low-Income

Credit Unions

Another change the Board is

considering is to use the ratings

framework to encourage increased

engagement with MDIs, women-owned

financial institutions, and low-income

credit unions. This approach would

make lending or investment activities in

these institutions a factor that could be

used to enhance ratings for the Retail

Test and Community Development Test.

These activities could be considered

when evaluating performance in an

assessment area, state or multistate

MSA, or for the institution. Activities

with MDIs, women-owned financial

institutions, and low-income credit

unions located outside of the bank’s

footprint would be considered when

assessing institution performance. The

Board is considering that substantive

and meaningful engagement with MDIs,

women-owned financial institutions,

and low-income credit unions would be

explicitly designated as criteria for an

‘‘outstanding’’ overall rating in order to

elevate the profile and importance of

investments in these mission-oriented

institutions.

Request for Feedback:

Question 88. Should consideration for

an outstanding rating prompted by an

investment or other activity in MDIs,

women-owned financial institutions,

and low-income credit unions be

contingent upon the bank at least falling

within the ‘‘satisfactory’’ range of

performance?

Question 89. Would it be helpful to

provide greater detail on the types and

level of activities with MDIs, women-

owned financial institutions, and low-

income credit unions necessary to

elevate a ‘‘satisfactory’’ rating to

‘‘outstanding’’?

XI. Data Collection and Reporting

The Board is considering what data

collection and reporting requirements

would be necessary to implement

certain options for updating the

delineation of assessment areas and the

proposed metrics-based approaches in

the Retail Lending Subtest and the

Community Development Financing

Subtest. The Board is mindful of the

tradeoff between seeking to minimize

burden potentially associated with new

data collection and reporting

requirements, especially for small banks

that opt in to the metrics-based

approach, while also enabling greater

clarity, consistency, and transparency

through the enhanced use of metrics.

A. Current Data Collection and

Reporting Requirements

1. Current Data Used for Deposits

Currently, the Board’s CRA regulation

does not require banks to collect or

report deposits data. Instead, for small

banks, total deposits and total loans data

from the Call Report are used to

calculate the loan-to-deposit ratio for

the entire bank. Total deposits allocated

to each branch from the FDIC SOD are

used for performance context for banks

of any size. Deposits data by depositor

location are not currently collected or

reported.

2. Current Small Bank and Intermediate

Small Bank Data Standards for Retail

Lending

Currently, small banks and

intermediate small banks are not

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12 CFR 228.42(a) and 12 CFR 228.42(f).

209

12 CFR 228.42(b)(1).

210

12 CFR 228.42(c)(1); 12 CFR 228.43(b)(1)(i).

211

12 CFR 228.42(b)(2).

212

FFIEC, ‘‘A Guide to CRA Data Collection and

Reporting,’’ https://www.ffiec.gov/cra/guide.htm.

213

12 CFR 228.43(a).

214

Id.

215

See FFIEC, Schedule RC–E, Deposit Liabilities,

p. 34, https://www.ffiec.gov/pdf/FFIEC_forms/

FFIEC031_202006_f.pdf.

216

See, e.g., FDIC, ‘‘Summary of Deposits

Reporting Instructions’’ (June 30, 2020), https://

www.fdic.gov/regulations/resources/call/sod/2020-

06-sod-instructions.pdf. These instructions provide

examples of common allocation methods and state,

‘‘It is recognized that certain classes of deposits and

deposits of certain types of customers may be

assigned to a single office for reasons of

convenience or efficiency. However, deposit

allocations that diverge from the financial

institution’s internal record-keeping systems and

grossly misstate or distort the deposit gathering

activity of an office should not be utilized.’’ Id. at

3.

required to collect, maintain, or report

loan data, unless they opt to be

evaluated under the lending,

investment, and service tests that apply

to large banks.

208

Examiners use

information for a bank’s major loan

products gathered from individual loan

files and maintained on the bank’s

internal operating systems, including

data reported pursuant to HMDA, if

applicable.

3. Current Large Bank Data Standards

for Retail Lending and Community

Development Financing

Large banks collect and report certain

lending data for home mortgages, small

businesses, small farm, and community

development loans pursuant to either

HMDA or Regulation BB. Examiners use

these data, along with other

supplemental data to evaluate CRA

performance, as explained below. A

bank may use the free FFIEC software

for data collection and reporting or

develop its own programs.

Retail lending data collection and

reporting requirements differ based on

the product line. For large banks that do

not report HMDA data, examiners use

home mortgage information maintained

on the bank’s internal operating systems

and/or from individual loan files. The

data elements from home mortgage

loans used for CRA include loan amount

at origination, location, and borrower

income. For small business and small

farm loans, Regulation BB requires large

banks to collect and maintain the loan

amount at origination, loan location,

and an indicator of whether a loan was

to a business or farm with gross annual

revenues of $1 million or less. Large

banks report this information at the

census tract level.

209

Large banks are not

required to collect or report data on

consumer loans; however, if a large

bank opts to have consumer loans

considered as part of its CRA

evaluation, the bank must collect and

maintain this information and include it

in its public file.

210

Regulation BB also requires large

banks to report the total number and

dollar amount of their community

development loans originated or

purchased during the review period, but

does not require information for

individual community development

loans, such as the location of the

loan.

211

Regulation BB does not require

the reporting or collection of

community development loans that

remain on the bank’s books or the

collection and reporting of qualified

community development investments.

As a result, the total amount (originated

and on-balance sheet) of community

development loans and investments

nationally, or within specific

geographies, is not available.

Consequently, examiners supplement

reported community development loan

data with additional information

provided by the bank at the time of an

examination, including the amount of

investments, the location or areas

benefited by these activities and

information describing the community

development purpose.

212

4. Data Currently Used for CRA Retail

Services and Community Development

Services Analyses

There are no specific data collection

or reporting requirements in Regulation

BB for retail services or community

development services. A bank must,

however, provide examiners with

sufficient information to demonstrate its

performance in these areas. The bank’s

CRA public file includes a list of bank

branches, with addresses and census

tracts; a list of branches opened or

closed; and a list of services, including

hours of operation, available loan and

deposit products, transaction fees, and

descriptions of material differences in

the availability or cost of services at

particular branches, if any.

213

Banks

have the option of including

information regarding the availability of

alternative systems for delivering

services.

214

Banks also volunteer

information on community

development services, such as the

number of activities, bank staff hours

dedicated or the number of financial

education sessions offered.

B. Deposits Data Options

The proposed approaches for the

Retail Lending Subtest and Community

Development Financing Subtest, as well

as the potential approach for

designating deposits-based assessment

areas, would require deposits data that

includes geographic location. The

approach to ratings discussed in Section

X could also potentially involve the use

of deposits data. As discussed below,

the Board seeks to balance proposals for

a metrics-based approach that could

increase certainty and transparency,

with the need to minimize additional

data reporting and collection

requirements wherever possible.

1. Deposits Data Sources

The use of SOD data would rely on an

existing FDIC data source that collects

information on a bank’s total domestic

deposits as defined in the Call Report,

including deposits of: (1) Individuals,

partnerships, and corporations; (2) U.S.

Government; (3) States and political

subdivisions in the United States;, (4)

commercial banks and other depository

institutions in the United States; (5)

Banks in foreign countries; and (6)

foreign governments and official

institutions (including foreign central

banks).

215

Of these, the first and third

components are the data points most

relevant to CRA. Importantly, FDIC

deposits reporting requirements allocate

deposit accounts to specific bank

branches, rather than by the address of

the depositor.

216

A requirement for some large banks to

collect and report deposits data

reflecting the location of those deposits

would align evaluations more closely

with the purpose of CRA by reporting

the community where a bank takes

deposits. This option would require

careful consideration of and comment

on the types of deposits that should be

used for this purpose, as well as

determining appropriate ways to report

geographic location.

2. Deposits Data for Small Banks and

Large Banks With One Assessment Area

Under the Board’s proposal,

additional deposits data collection or

reporting would not be required for

small banks that opt-in to the metrics-

based approach and for large banks with

one assessment area. For small banks,

only the Retail Lending Subtest would

apply, and SOD data could be used for

the retail lending screen, which would

not require additional data. For large

banks with one assessment area, SOD

data could also be used for the retail

lending screen and community

development financing metric.

Because SOD data requires banks to

allocate deposit accounts to specific

bank branches, rather than by the

depositor location, using SOD data for

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small and large banks with a single

assessment area would be more precise

than for banks with multiple assessment

areas. For small banks with multiple

assessment areas, the Board believes

SOD data are also appropriate because

this data would be used only for the

retail lending screen and, potentially,

when calculating ratings, and because it

would minimize burden for small

banks.

3. Options for Deposits Data for Large

Banks With More Than One Assessment

Area

For large banks with more than one

assessment area, the Board is

considering whether these banks should

also use SOD data for deposits or be

required to collect and report deposits

data that includes geographic

information about the location of the

bank’s deposits. The Board is also

considering whether large banks with

more than one assessment area should

be further differentiated between those

that have deposits concentrated around

their branches and those that have a

substantial share of deposits that are

more diffuse and not concentrated

around branches. However, setting a

standard to differentiate the location of

deposits in this way could be

challenging, given the limitations of

existing deposits data.

As noted above, large banks would

need deposits data for the retail lending

screen and community development

financing metric. If SOD data is used,

large banks would not be required to

collect and report deposits data.

However, there are several challenges

with this approach. For large banks with

multiple assessment areas, the practice

of allocating deposit accounts to specific

bank branches could lead to less

accurate calculations of deposits in each

of a bank’s assessment areas. This lack

of precision would likely be even

greater for those large banks with

business models and practices that

generate significant deposits outside of

their branch network. Another

shortcoming in using SOD data for these

banks is that it includes more

information than needed for CRA

purposes, such as deposits from foreign

countries.

This lack of precision in deposits data

could misrepresent a bank’s deposits

drawn from a particular assessment

area, as well as the performance of a

bank’s peers in that market. This lack of

precision also could reduce the

accuracy of the community

development financing metric and

increase an examiner’s reliance on

performance context information to

interpret a large bank’s performance.

An alternative approach to using SOD

deposits data would be requiring certain

large banks to collect and report retail

deposits data. The data could also be

used in the future if deposits-based

assessment areas were established. A

concern, however, is that the process of

implementing systems to compile the

requisite data could be costly and

burdensome, even for large banks.

Stakeholders have noted that deposits

data based on the address of a depositor

would require a substantial one-time

investment in systems and ongoing

staff-related costs to identify customer

records from multiple loan, deposit and

investments platforms that need to be

geocoded and allocated to the

appropriate assessment areas.

Request for Feedback:

Question 90. Is it appropriate to rely

on SOD data for all banks, a subset of

large banks with multiple assessment

areas based on business model or the

share of deposits taking place outside of

assessment areas, or only for small

banks and large banks with one

assessment area? What standards would

be appropriate to set for business

models or the appropriate share of

deposits taking place outside of

assessment areas, if such an approach is

chosen?

Question 91. Is the certainty of

accurate community development

financing measures using bank collected

retail deposits data a worthwhile

tradeoff for the burden associated with

collecting and reporting this data for all

large banks with two or more

assessment areas?

C. Retail Lending Data Options for

Small Banks Opting for the Metrics-

Based Approach

Under the Board’s proposed

approach, small banks that opt in to the

metrics-based approach would be

evaluated under only the Retail Lending

Subtest, not the Community

Development Test or the Retail Services

Subtest. Small bank lending is currently

evaluated using a sample of data that is

gathered from a bank’s loan files, data

pulled from its internal operating

systems, or a combination of the two if

a bank maintains some, but not all,

information in its internal systems.

Many small banks maintain information

such as loan amount at origination, loan

location, and borrower income or

revenue in their internal operating

systems, but some do not collect income

or business revenue information. These

data fields would be needed to calculate

the retail lending distribution metrics.

The Board is considering two options

for gathering this information. Under

the first option, the Board would use a

sample of bank data drawn from each

assessment area to generate the retail

lending metrics for small bank

evaluations. This approach could use

information maintained by the bank in

its internal operating systems and could

supplement it with information pulled

from loan files, similar to the process

used today. A benefit to this approach

is that it would not require any changes

to a bank’s data collection processes. A

drawback to this approach is that it

would not allow a small bank to obtain

the certainty and clarity of knowing its

performance in advance of an

examination. The bank would not know

which loans would be included in the

sample used to evaluate performance

and, therefore, could not use the metrics

dashboard described in Section V with

the same degree of confidence. In

addition, as is the case today, bank staff

would have to gather the information or

files needed for examiners to review the

loans sampled.

As a second option, a bank could

maintain information in a format

consistent with its own internal

operating systems, with income or

revenue information required only to

the extent it is used in the bank’s

underwriting process. A key benefit of

this option is that it would provide a

bank with certainty about the loans

considered in the evaluation and, as a

result, would allow it to track its

performance using the dashboard to

monitor its retail lending performance

against the threshold for a presumption

of ‘‘satisfactory’’ performance. A

drawback to this option is that any

small bank that uses, but does not

capture, revenue or income information

in the credit granting process, would

need to update its systems and

processes to capture this information.

Request for Feedback:

Question 92. Which approach for

retail lending data collection would

provide the best balance between data

collection burden and the transparency

and predictability of CRA examinations

for small banks that opt in to the

metrics-based approach—using a

sample of bank data drawn from each

assessment area to generate the retail

lending metrics, or the use of

information maintained by a bank in a

format consistent with its own internal

operating systems?

Question 93. Are there other

approaches to data collection that

would benefit small banks and should

be considered?

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D. Collection and Reporting of Loan and

Investment Data and Services

Information for Large Banks

The Board is considering how other

data collection and reporting

requirements would need to change to

effectively implement a metrics-based

approach for large banks for the Retail

Lending Subtest and the Community

Development Financing Subtest. In

addition, while the Retail Services

Subtest and Community Development

Services Subtest would remain

primarily qualitative in nature, the

Board seeks to improve the transparency

of these evaluations by making more

consistent information available to

examiners.

1. Collection of Retail Lending Data

Much of the retail lending data

needed to examine a large bank under

the proposed Retail Lending Subtest is

currently collected and reported.

However, additional data would be

needed for the retail lending metrics for

consumer loan data and home mortgage

data for non-HMDA reporters. The data

necessary to analyze CRA performance

for both home mortgage and consumer

loans are loan amount at origination,

loan location (state, county, census

tract), and borrower income. The two

options discussed above for gathering

data for small banks (having examiners

sample the bank’s data or having banks

collect the data in their own format)

could also be used at large banks. A

third option is to have large banks

collect data in a format prescribed by

the Board, as is done for small business

or small farm loans under Regulation

BB. The third option would not involve

reporting consumer loans for large

banks or home mortgage data for non-

HMDA reporters that are also large

banks.

Request for Feedback:

Question 94. What are the benefits

and drawbacks of relying on examiners

to sample home mortgage data for non-

HMDA reporters and consumer loan

data for all large banks, requiring banks

to collect data in their own format, or

requiring banks to collect data in a

common Board prescribed format?

2. Collection and Reporting of

Community Development Financing

Data

The lack of granular reporting of

community development loan data or

any community development

investment data means that there is no

aggregate community development data

at a local level available to create the

local benchmarks for the community

development financing metric described

in Section VII. In order to develop the

community development financing

metric and local benchmarks, large

banks would need to report annually the

number and dollar amount of

community development loans

originated and investments made, and

the remaining number and dollar

amount of community development

loans and qualifying investments from

prior years as reflected on the balance

sheet at the end of the calendar year. As

was noted earlier, large banks already

report community development loans

on an aggregated basis for the

institution.

The Board is considering the

development of a Board-prescribed,

machine-readable format to ensure a

consistent and transparent process for

collecting community development

financing data. Information that could

be collected for each community

development loan or qualified

investment includes the loan or

investment amount (original or

remaining on balance sheet), area(s)

benefitted, community development

purpose (e.g., affordable housing or

economic development), and type of

investments (e.g., equity investment or

mortgage-backed security). A subset of

that data (e.g., number and dollar

amount of community development

loans and qualified investments) would

be reported at some aggregated level

(e.g., county or MSA). The Board

acknowledges that the collection and

reporting of standardized community

development loan and qualified

investment data will likely necessitate

up front changes to a bank’s internal

operating systems, including possibly

the processes for booking community

development loans and investments.

Request for Feedback:

Question 95. Are the community

development financing data points

proposed for collection and reporting

appropriate? Should others be

considered?

Question 96. Is collecting community

development data at the loan or

investment level and reporting that data

at the county level or MSA level an

appropriate way to gather and make

information available to the public?

Question 97. Is the burden associated

with data collection and reporting

justified to gain consistency in

evaluations and provide greater

certainty for banks in how their

community development financing

activity will be evaluated?

3. Collection of Retail Services

Information

The Board is considering

standardizing the types of data that

banks would provide to examiners to

make the assessment of the effectiveness

and responsiveness of the bank’s

delivery systems, services, and products

more consistent across large bank

examinations. Relevant information

would be provided in the CRA

performance evaluation, thereby

providing some transparency to the

public.

For the branch distribution analysis,

the Board is considering whether it

would be beneficial for banks to submit

standardized branch data, including the

number and location of branches,

ATMs, hours of operation by branch

location, and record of opening and

closing of branch offices and ATMs (as

of dates). A standardized (Board-

provided) template for services would

streamline the process for banks and

examiners and produce a more

consistent evaluation methodology.

Given that branch data are currently

required to be retained in the public

files, this approach would not require

new data collection.

For non-branch delivery channels, a

services template could include

information on customer usage, number

of transactions (rate of adoption), and

cost to determine whether non-branch

delivery channels are reaching LMI

areas and individuals. For branch-

related services, banks could include in

the template a customized list of

services offered that are responsive to

LMI needs, including bilingual/

translation services in specific

geographies, disability accommodation,

free or low-cost government, payroll, or

other check cashing services, and

reasonably priced international

remittance services.

Request for Feedback:

Question 98. Would collecting

information in a Board-provided

standardized template under the Retail

Services Subtest be an effective way of

gathering consistent information, or is

there a better alternative?

4. Collection of Community

Development Services Information

In evaluating community

development services, examiners

currently consider the information a

bank chooses to collect and provide to

demonstrate the quantitative and

qualitative aspects of its community

development services. Banks generally

provide information related to the lists

included in the Interagency Questions

and Answers, such as the number of

community development service

activities, bank staff hours dedicated,

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66463

Federal Register / Vol. 85, No. 202 / Monday, October 19, 2020 / Proposed Rules

217

See Q&A §ll.24(e)—2.

the number of LMI participants, or the

number of organizations served.

217

The Board is considering a

standardized (Board-provided) template

with free form text fields. Banks would

collect information on data points, such

as the number and hours of community

development services, the community

development purpose, and the counties

impacted by the activity. Further, a bank

could provide information it deems

relevant on the impact and

responsiveness of its community

development services activities. For

example, a bank may choose to provide

the number of clients in financial

education classes who opened a bank

account, or a description of how a

banker’s service on the board of

directors of a local organization led to

the creation of a new small business

lending program. The number of bank

employees in an assessment area is

another quantitative field that could be

collected as a reference point if metrics

are used.

Request for Feedback:

Question 99. Possible data points for

community development services may

include the number and hours of

community development services, the

community development purpose, and

the counties impacted by the activity.

Are there other data points that should

be included? Would a Board-provided

template improve the consistency of the

data collection or are there other options

for data collection that should be

considered?

By order of the Board of Governors of the

Federal Reserve System, September 22, 2020.

Ann E. Misback,

Secretary of the Board.

[FR Doc. 2020–21227 Filed 10–16–20; 8:45 am]

BILLING CODE P

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Published date	19 October 2020
Citation	85 FR 66410
Record Number	2020-21227
Section	Proposed rules
Court	Federal Reserve System

Community Reinvestment Act

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