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On May 20, 2020 the Office of the Comptroller of the Currency (OCC) approved a final rule to modernize the regulations under the Community Reinvestment Act (CRA) that have not been substantively updated for nearly 25 years.
The rules are intended to:
- Increase bank activity in low- and moderate-income communities where there is significant need for more credit, more responsible lending, greater access to banking services, and improvements to critical infrastructure.
- Clarify what qualifies for credit under the CRA, enabling banks to better implement reinvestment and other activities that can benefit communities.
- Create an additional definition of “assessment areas” tied to where deposits are located—ensuring that banks provide loans and other services to low- and moderate-income persons in those areas.
- Change the definition of small bank, which in turn will require more banks to collect CRA data.
- Address digital banking changes and to further encourage lending to low- and moderate- income borrowers living in underserved communities, such as rural areas and tribal lands far removed from urban centers where bank branches are concentrated.
Neither the Federal Deposit Insurance Corporation (FDIC) nor the Federal Reserve Board (FRB) joined in this rulemaking. All of the agencies appear to be in agreement that the CRA regulations need to be revised. The OCC has been bulling its concept through the revision process for two years. The advanced notice of proposed rulemaking was published by the OCC in August 2018 without participation from the FRB or the FDIC. The agencies stated at that time they would be in sync when the proposed rule was published. The FDIC joined the OCC in issuing the proposed regulation in December 2019, but the FRB was notably absent. The agencies indicated they would be in sync when the final rules were published; that did not happen.
So what happens from here? Will the other agencies adopt the OCC rule or will they adopt a different version of the rule? Will all three of the bank regulatory agencies get together on the same regulation in some point in the future?
The 372-page final rule is effective on October 1, 2020, but the complete phase in will take several years.
This two-hour webinar recording:
- Explains all of the provisions of the OCC’s final rule and points out the major changes made since the December 2019 proposed rule;
- Provides suggestions for implementing the new rule; and
- Provides an update on the current positions of the FDIC and the FRB.
Upon review of the recording participants understand:
- The addition of a second definition of an assessment area, which allows a bank that receives 50 percent or more of its retail domestic deposits from geographic areas outside of its facility-based assessment area to delineate separate, non-overlapping assessment areas in the smallest geographic area where it receives 5 percent or more of its retail domestic deposits;
- The concept of qualifying activities, which includes revised definitions for community development loans, investments and services;
- The revised definition of small bank, which includes institutions with assets of $600 million or less, and the evaluation process for such banks;
- Intermediate small banks, which had been removed from the regulation in the December 2019 proposal, are back in the final regulation, using the term “intermediate bank”. Intermediate bank means a bank with assets that exceed $600 million, as adjusted, and that had assets of $2.5 billion or less in four of the previous five calendar quarters.
- The concepts of wholesale and limited purpose banks, which had been deleted in the December 2019 proposal, are back in the final regulation.
- The revised and expanded data collection, recordkeeping and reporting requirements that apply to banks with assets in excess of $2.5 billion and the new requirements that require small and intermediate banks to collect and maintain certain data;
- What is the CRA Evaluation Measure, how is it calculated, and how high does it have to be in order to get a satisfactory or outstanding CRA rating;
- What is the Community Development Minimum and how high must it be to get a satisfactory or outstanding CRA rating;
- What are the differences between bank-level performance standards and assessment area performance standards;
- What is a retail domestic deposit and how is it used in the proposed new rules;
- What is the Geographic Distribution Test, the Geographic Demographic Comparator Threshold, and the Geographic Peer Comparator Threshold and how are these numbers used, and what numbers are satisfactory;
- What is the Borrower Distribution Test, the Borrower Demographic Comparator Threshold, and the Borrower Peer Comparator Threshold and how are these numbers used, and what numbers are satisfactory; and
- How the changes impact your financial institution.
The recording is designed for management of the loan department, Compliance Officers, CRA Officers, marketing staff and auditors from national banks and savings association regulated by the OCC. Staff from banks regulated by the FDIC and the Federal Reserve will benefit from the discussion by understanding the current status of CRA regulation.