Proposal to Ease CRA Burdens Sees Action; Small Bank Would Be Defined As Assets Under $500 Million

WASHINGTON-The Federal Deposit Insurance Corporation and the Federal Reserve Board approved an interagency notice of proposed rulemaking last week increasing the maximum size institution eligible for streamlined Community Reinvestment Act examination. The NPR proposes to change the definition of “small bank” from those with assets under $250 million or an affiliate of a holding company with less than $1 billion in assets to banks with assets under $500 million and no limit for a holding company’s affiliates. The proposal also clarifies that an institution’s CRA evaluation is negatively affected if the institution has been employing discriminatory, illegal, or abusive practices concerning certain loans. Finally, CRA disclosure statements would have to show the number and amount of small business and farm loans by census tract. These loans are currently disclosed in the aggregate. Comptroller of the Currency John Hawke, Jr. issued a statement following FDIC’s decision in support of the agency’s action. “This proposal is the result of an extensive and collaborative review of the CRA regulations by the banking agencies,” he said. “Our staffs analyzed roughly 400 comments received in response to the Advance Notice of Proposed Rulemaking that we issued in July 2001. The fact that we are just now proposing amendments to the regulations reflects both the care with which the review was undertaken and the complexity of the issues presented.” Hawke noted that the agencies found the current CRA regulations “essentially sound” and focused on areas that would clearly benefit from updating. He explained that the percent of industry assets undergoing the non-streamlined CRA process would only decline from just above 90% to slightly below 90% under the proposal. He also pointed out that allowing banks to use the streamlined CRA examination process does not lessen their obligation, only their burden in reporting it. The Independent Community Bankers of America applauded the NPR but pushed for further CRA relief. “In an age of trillion dollar banks, examining a $500 million bank using the `large bank’ CRA exam procedures is completely unwarranted,” ICBA President and CEO Ken Guenther commented. “Increasing the small bank size limit will not undermine the purposes of CRA. Instead it will free larger community banks from unnecessary costs, improving their productivity and enhancing their ability to meet the credit needs of their communities.” ICBA has been urging regulators to bump the max up to $2 billion, he said, adding that CRA examinations should focus on “truly large banks,” and not community banks that cannot survive without serving their communities. The American Bankers Association also expressed mixed feelings. Though the trade association supported the effort as a first step, the group was disappointed that none of its investment test recommendations were incorporated. ABA had previously suggested that the investment test be eliminated. However, if it was not, ABA advocated that several changes be made, including making investments substitutable for loans for CRA purposes; adjusting investments for the cost of capital to support the investment; and expanding the definition of “qualified investments.” ABA Executive Vice President Ed Yingling vowed that the group would continue to work toward additional changes. ABA also supports a $1 billion threshold for “small banks.” America’s Community Bankers President and CEO Diane Casey-Landry also came out in support of the NPR. She explained, “Community banks with assets of more than $250 million-the existing cutoff for using the streamlined procedure-cannot compete with the very large institutions for CRA investments. These smaller institutions face increasing difficulty in achieving `satisfactory’ ratings under the large bank investment test. “It’s simply not fair to judge the CRA performance of banks with $250 million in assets on the same basis as multi-billion-and now trillion-dollar banks. The proposal begins to remedy this inequity.” The Office of Thrift Supervision is expected to announce its approval shortly after deadline. Comments are due within 60 days of publication in the Federal Register. The agencies committed themselves to reviewing the CRA regulations by 2002 and accordingly published an advance notice of proposed rulemaking on July 19, 2001. If the proposal is approved as written, more than 1,000 additional community banks will be eligible for the streamlined examination, according to the banking groups. [email protected]