Community Reinvestment Act Reform: A More Straightforward Approach

The Comptroller of the Currency, Eugene A. Ludwig, announced a proposed change in the implementation of the Community Reinvestment Act (CRA) on September 26, aiming to improve the evaluation of banking practices. The reform is designed to be more straightforward and responsive to the diversity among banks and communities they serve. The proposed rule replaces the current 12 assessment standards with objective performance-oriented standards, aiming to increase credit availability in poor and minority neighborhoods.

Key Takeaways:

• The proposed change aims to make the Community Reinvestment Act implementation more straightforward and responsive to the diversity among banks and communities.
• The new proposal strikes a balance between generating community reinvestment and reducing regulatory burdens on banks.
• A bank's lending, investments, and services will be evaluated based on actual performance, with lending performance accounting for 50% of the evaluation.
• Banks and savings institutions must receive a satisfactory rate or better on overall community lending to win regulatory approval for mergers and other transactions.
• The proposed rule introduces a new community development test that will primarily benefit low- and moderate-income individuals.
• Small institutions with total assets of less than $250 million will be subject to streamlined examinations and will not be required to collect demographic data.
• Institutions can choose to be evaluated under an agency-approved strategic plan developed with community input, approval standards, and goal specification.
• A retail institution must receive at least a "low satisfactory" on the lending test to receive an overall rating of satisfactory.
• The analysis of a bank's share of low- and moderate-income markets will be taken into consideration where appropriate.
• The service test will consider a range of services, including branch location, branch closing, services offered at branches, and community development services.
• Small institutions will be evaluated on their loan-to-deposit ratio, the percentage of loans located in their service area, and their response to warranted complaints.

Statistics:

• 250 bankers, community groups, and local officials testified at seven hearings held around the country during the comment period on the December 1993 proposed rule.
• Over 6700 written comments were received by the four federal agencies that regulate the banking industry during the same comment period.
• A bank's lending performance will account for 50% of the evaluation under the proposed rule.
• Small institutions with total assets of less than $250 million will be subject to streamlined examinations.
• 45 days will be the comment period for this new proposed rule, beginning on Monday, October 3, 1994.
• All institutions will be given up to 18 months before assessments under this new rule will be mandatory. Others could be assessed as early as six months after the final rule is published.

Sources:

• Comptroller of the Currency Eugene A. Ludwig
• Federal Register
• Federal Reserve
• Office of the Comptroller of the Currency
• Office of Thrift Supervision
• Federal Deposit Insurance Corporation