STATUS OF CRA REVISIONS

The federal banking regulatory agencies are making progress in development of a proposal to revise the Community Reinvestment Act regulations. Senior officials at the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and Federal Reserve briefed industry leaders on the topic at a recent Consumer Bankers Association conference.

The officials indicated that, after preliminary talks and a review of public comments submitted to the OCC, the agencies are ready to start writing a proposal. In a recent speech, FDIC Chairman Jelena McWilliams said she is “hopeful” for an interagency CRA proposal out by March 2020.

CRA Rating

While the agencies agree on the need for a clearer and consistent method for grading CRA compliance, they stop short of endorsing a single CRA metric.

Assessment Area

Everyone seems to agree that CRA assessment boundaries need to adapt to the digital age. Traditionally, a bank’s CRA performance is assessed based on its investment within its branch network. But CRA reform advocates have long said that regulators need to rethink that approach.

There are rural communities that perhaps need CRA investments the most that fall outside the bank’s branch network. Meanwhile, some banks with national platforms might only have one physical office, meaning the CRA assessment area is not aligned with where the bank is active.

All the details of a new approach to assessment areas still need to be ironed out, but regulators appear to agree that a new system needs to better reflect a bank’s digital activities. But the Fed has cautioned that CRA reforms should not inadvertently lower the importance of branch banking.

In a speech last month, Federal Reserve Board Gov. Lael Brainard said one idea under discussion is creating two different assessment areas for a bank: one for its retail activities and another for its community development activities.

Limits on Credit for Mortgage Securities

Another potential change brought up during the CBA conference was whether the agencies may restrict how many times a bank can purchase mortgage-backed securities (MBS) to count as CRA credit.

Some public comments raised concern about banks over relying on MBS-related trades and that that concern has gained the attention of the regulators. It has been reported that the agencies give full credit to banks that purchase mortgage-backed securities when basically not one new dollar is going into a community anywhere across the country. After three, four, five, six different trades, there is room for a real debate as to whether those are new dollars going into any community.

Proposal Date

Regulators have been cautious not to set a hard deadline for when a joint proposal would be released. However, the heads of the OCC and FDIC said in separate speeches at the CBA conference that they would like to have a proposal complete by early next year.

 

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