Federal Reserve Board ("FRB") Governor Lael Brainard proposed an approach to Community Reinvestment Act ("CRA") oversight that would use metrics on retail banking services and community development to evaluate banks in low- and moderate-income ("LMI") neighborhoods.
In an address at the Urban Institute, Ms. Brainard argued for a retail test and a community development test that would use a "strong common set of interagency standards." The retail test would evaluate banks' records of providing retail loans and retail banking services. Concurrently, the community development test would assess large banks, wholesale banks and limited-purpose banks' performance.
Ms. Brainard argued that conducting separate tests is an important way to (i) specifically evaluate retail banks in an assessment area and remain consistent with the CRA's purpose of providing credit in underserved communities, (ii) tailor expectations for banks of varying sizes and (iii) widen the scope in order to "calibrate the evaluation metrics to the opportunities available in the market." Based on the "best available data," she stated, the FRB determined that CRA metrics tailored to local conditions and varying types of banks would best serve the credit needs of LMI neighborhoods.
According to Ms. Brainard, the retail test would assess how well banks in a given assessment area serve (i) LMI borrowers, small businesses and small farms, and (ii) LMI neighborhoods. She stated that the retail lending metrics would:
"correlate well" with previous ratings of bank performance;
be tailored to meet the needs of the local community, which would not be possible with a uniform benchmark;
adjust automatically with local business cycles; and
evaluate banks based on (i) the locations of branches and ATMs and (ii) the level of service they provide to customers via online and mobile access channels.
Ms. Brainard emphasized that conducting a community development test for large retail banks, and for wholesale and limited-purpose banks, would:
consider a broader geographic area in evaluating community development relative to retail lending;
provide a comparison between (i) a combined measure of a bank's community development financing relative to deposits and (ii) both the national and local averages;
promote activity in underserved areas by taking into consideration a bank's community development activities in regions or states that are assessment areas; and
evaluate services qualitatively at the assessment-area level.
The OCC and FDIC recently proposed several amendments to the CRA. The FRB elected not to participate in the joint rulemaking. The proposed OCC-FDIC amendments would:
While the FRB proposed a different approach, Ms. Brainard argued that a "strong common set of interagency standards is the best outcome" and was hopeful to "find a way toward [an] interagency agreement."
The OCC and the FDIC proposed amendments to the regulations implementing the Community Reinvestment Act to encourage banks to provide more qualified lending, investment and financial services to underserved communities.
In a notice of proposed rulemaking, the Office of the Comptroller of the Currency requested feedback on the ways it could modernize the Community Reinvestment Act regulatory framework.