Second, the proposal is tailored to adjust obligations based on the asset size of the bank. Discover the latest intel on nationwide quality control and risk activity. To evaluate the impact and responsiveness of a banks community development activities, the agencies would use defined impact factors. Under the proposal, retail loans located outside any facility-based assessment area or retail lending assessment area for a large bank and outside of any facility-based assessment area for intermediate banks with substantial outside assessment area lending, would be evaluated on an aggregate basis at the institution level as part of the Retail Lending Test. endobj We will update you on new newsroom updates. <>stream Data Point: 2020 Mortgage Market Activity and Trends. CFPB. endobj The agencies will publish the final rule in the Federal Register. The proposal helps to distinguish between banks that are barely passing and banks that are meaningfully above the satisfactory threshold. Two of the proposed impact review factors are activities in persistent poverty counties (defined as counties with a poverty rate of at least 20% over each of the last three decades) and areas with low levels of community development financing. The action follows the OCCs rescission in December 2021 of its 2020 CRA final rule and replacement of that rule with one that is largely based on the OCCs 1995 CRA rule adopted jointly with the Federal Reserve and FDIC. The updated thresholds, set at $2 billion (cutoff between a large bank and an intermediate bank) and $600 million in assets (cutoff between an intermediate bank and a small bank), are intended to reflect the differences between banks of varying sizes.11 Picking specific size thresholds is never easy, and I look forward to receiving the publics views as to whether these proposed cutoffs are calibrated appropriately. This rule applies to community banks subject to the CRA. The proposal solicits feedback as to whether Special Purpose Credit Programs should be explicitly listed as an example of a responsive credit product or program that facilitates mortgage and consumer lending targeted to low- or moderate-income borrowers. This is a joint effort with the Office of the Comptroller of the Currency and the Federal Reserve Board of Governors, which are proposing the same changes for banks under their respective purviews. 5. Lending institutions of all sizes use ACES to improve productivity, efficiency and quality while controlling costs. OCC Bulletin 2021-67- CRA: Small and Intermediate Small Bank and Savings Association Asset Thresholds. State policymakers are already moving in this direction. Loan servicers are able to tackle all servicing QC challenges while keeping pace with ever-changing regulatory requirements. According to a report by the Federal Reserve Bank of St. Louis, rural communities are now 10 times more likely to be in a banking desert.5, The loss of local banks means the loss of local knowledge of the rhythms of rural communities, small businesses, and small farms three groups that rely on in-person banking services. The numerator would be a banks annual average of dollars of community development financing activity in each assessment area. For large banks that do not pass this screen, examiners would review performance context information that is specific to a banks level of retail lending in a facility-based assessment area to determine if there is an acceptable basis for the bank not meeting the retail lending volume screen. Federal Register notice: Community Reinvestment Act Regulations (PDF), Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue N.W., Washington, DC 20551, Last Update: Discover how ACES provides the solutions you need, tailored specifically to your line of business. 5 0 obj The proposal substantially retains the current lending test for small banks and the community development test for intermediate banks. For banks with assets of $10 billion or less, only the responsiveness of credit products and programs would be required. To calculate these distribution metrics, the number of a banks retail loans, rather than the dollar amounts, would be used to avoid weighing larger dollar loans more heavily than smaller dollar loans. If you want to republish the article Ifa large banks ratio meets or exceeds 30 percent of the aggregate (market) ratio, the banks major product lines would be evaluated under the geographic and borrower distribution metrics approach. Infrastructures, International Standards for Financial Market Both credit and deposit products would be assessed at the institution level and would be required for large banks with assets of more than $10 billion. The proposal would retain the current definition of such activities to include activities that have as their primary purpose community development and are related to the provision of financial services. Rachel Novak, et al. Small banks (less than $600 million in assets) would continue to face the current small bank performance standards that evaluate retail lending. Under the current approach for large banks, community development loans and investments are evaluated separately. Banks may round the median hourly compensation value to the nearest dollar. 228 0 obj Communications, Banking Applications & Legal Developments, Financial Stability Coordination & Actions, Financial Market Utilities & Infrastructures. A Retail Lending Volume Screen would be used to compare the ratio of a banks retail lending to deposits to that of other banks in the same facility-based assessment area. 2022. https://ers.usda.gov/data-products/food-dollar-series/ . However, the proposal would tailor the geographic requirements for delineating facility-based assessment areas based on bank size. The Federal Reserve, the central bank of the United States, provides While the agencies have acknowledged concerns about subjectivity in the current proposal, further review of the proposal is needed to determine whether the proposal adequately addresses those concerns. The Office of the Comptroller of the Currency (OCC) today published. system. 3. The June 2020 rule provides that the dollar value of a community development service is determined by multiplying "compensation" by the total number of hours one or more employees spent performing the service. Among other provisions designed to incentivize activities in these communities, activities that support Native Communities is a proposed impact review factor under the Community Development Financing Test (including the version for Wholesale or Limited Purpose Banks) and Community Development Services Test. Refer to 12 CFR 25.03. The test would consist of a primarily qualitative assessment of a banks community development service activities. Large banks (at least $2 billion in assets) would be evaluated under the proposed Retail Lending Test, Community Development Financing Test, Retail Services and Products Test, and Community Development Services Test. This is particularly true in the mortgage market, given the role of mortgage programs administered through the Department of Veterans Affairs, Department of Agriculture, Department of Housing & Urban Development, and government-sponsored enterprises. Banks of all sizes would retain the option to request approval to be evaluated under an approved strategic plan. These components would be assessed at the facility-based assessment area, state, multistate MSA, and institutions levels as follows: Community Development Services Test. The OCC designates distressed and underserved areas in accordance with the June 2020 rule. After moving alone in 2020 to reform its Community Reinvestment Act (CRA) regulation, the Office of the Comptroller of the Currency (OCC) has joined the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve Board in issuing a joint notice of proposed rulemaking setting forth proposed amendments to their regulations implementing the CRA. Subscribe to our RSS feed to get the latest content in your reader. Grovetta N. Gardineer Under the proposal, banks would also have stronger incentives to finance activities that support very small businesses and farms with $250,000 or less in revenue the backbone of many rural economies.8, In addition, the proposal would increase incentives for banks to finance community development projects in areas experiencing persistent poverty, as well as areas with low levels of past community development financing, including rural communities.9 The proposal also includes explicit incentives for community development financing and services in Native communities.10. For large banks, the proposal would disclose mortgage lending data broken out by race and ethnicity. Learn more about ACES products features and services. Review of Monetary Policy Strategy, Tools, and Qualifying activities in census tracts on the 2020 interagency list are eligible to receive CRA credit for 12 months after publication of the list if the activities meet the criteria in 12 CFR 25.04. 2021. https://www.usda.gov/media/blog/2020/03/05/look-agricultural-productivity-growth-united-states-1948-2017 . A product line (closed-end mortgage loans, open-end home mortgage loans, multifamily loans, small business loans, small farm loans, automobile loans) would generally be considered a major product line if it constitutes 15 percent or more of the dollar value of a banks retail lending in a particular assessment area over the evaluation period. Small and intermediate banks would not be subject to this requirement. 3 Refer to OCC Bulletin 2020-99, "Community Reinvestment Act: Key Provisions of the June 2020 CRA Rule and Frequently Asked Questions," for more information about how bank type is used to determine a bank's CRA examination type. Currently, almost every bank passes its Community Reinvestment Act exam, and most do so comfortably. or have questions about the content, In nonmetropolitan areas, banks can receive credit for certain volunteer activities that meet an identified community development need even if unrelated to financial services. Read white papers, guides, checklists and more authored by our team of risk and compliance experts. This approach follows from the agencies view that evidence of discriminatory or illegal practices by such subsidiaries should be factored into a banks performance evaluation because their activities would be considered to be a component of the banks own operations. The proposal would give banks Community Reinvestment Act credit for a range of activities that promote climate resiliency, such as funds to family farmers facing drought conditions, or investments that help family farmers shift to renewable energy sources. In addition, the agencies will post a list of the current and historical asset-size thresholds on the website of the Federal Financial Institutions Examination Council (https://www.ffiec.gov/cra). Assigned Scores and Ratings. If those factors do not account for the banks low volume of retail lending, the bank would only be eligible for a Retail Lending Test score in a facility-based assessment area of Needs to Improve or Substantial Noncompliance. For intermediate banks and small banks that elect to be evaluated under the Retail Lending test, failing to pass the screen would be a qualitative consideration that could adversely impact Retail Lending Test scores for facility-based assessment areas. Banking Deserts Become a Concern as Branches Dry Up. Federal Reserve Bank of St. Louis. First, the proposal would improve the Community Reinvestment Act frameworks responsiveness to the characteristics and needs of rural communities by expanding large banks retail assessment areas beyond where they merely have a physical presence to include geographies where they conduct mortgage and small business lending.7 This will allow for better coverage of rural areas that have experienced substantial branch closures in recent decades. A Look at Agricultural Productivity Growth in the United States, 1948-2017. USDA Economic Research Service. To evaluate retail lending for each of a banks major product lines in its facility-based assessment areas and, as applicable, retail lending assessment areas and outside retail lending areas, the following metrics and calculation methods would be used: Geographic distribution metrics would evaluate a banks record of serving, respectively, low-income census tracts and moderate-income census tracts. The OCC's computation of the banking industry median hourly compensation is used to quantify the value of a bank's community development services under the June 2020 rule. Due to the current lack of data, the process would initially be primarily qualitative in nature, with the agencies considering the percentage of the banks activities that meet each impact factor but not using multipliers or specific thresholds to directly tie the impact review to specific scores. The OCC will also apply a one-year lag period for census tracts that were listed in the 2020 interagency list of distressed or underserved nonmetropolitan middle-income geographies6 but are no longer designated as distressed or underserved in the 2021 list. the banking industry median hourly compensation value used for determining the dollar value of community development service activities during 2021. a bank with assets of $600 million or less is a small bank. "Bank type" is the term that the OCC uses to identify banks that are small, intermediate, wholesale, and limited purpose or banks subject to general performance standards (GPS). Execute audits more efficiently, increase productivity, and make better informed decisions across lines of business. a bank with assets greater than $600 million and equal to or less than $2.5 billion is an intermediate bank. Practices, Structure and Share Data for the U.S. Offices of Foreign 2 For more information, refer to OCC Bulletin 2019-40, "Community Reinvestment Act: Guidelines for Requesting Designation as a Wholesale, Limited Purpose, or Special Purpose Bank."
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