Fed Withdraws Proposed CRA Amendments That Would Have Eased Reporting

WASHINGTON-The Federal Reserve Board on July 16 withdrew its proposed amendments easing Community Reinvestment Act reporting regulations. Bankers offered strong support to the proposal, which would have raised the threshold to fall under the small bank examination from $250 million to $500 million and lower a bank’s CRA rating if it engaged in a pattern or practice of asset-based lending. The Office of the Comptroller of the Currency has also redrawn its similar proposal, while the Office of Thrift Supervision said it still plans to go ahead with increasing the threshold to $1 billion. The Federal Deposit Insurance Corporation is still awaiting a vote on the issue. The Independent Community Bankers of America pointed out that previously, FDIC Vice Chairman John Reich said in congressional testimony last month, “The proposal would not exempt those institutions from complying with CRA.[and].. would result in significant regulatory burden reduction for a number of institutions without weakening the objectives of the Community Reinvestment Act.” The Fed’s statement read, “While community banks strongly favor raising the threshold, it is uncertain that the cost savings to the average community bank of being “small” rather than “large” under the proposal would be significant. On the other side, the proposal’s cost in the form of a potential reduction in community development capital in a significant number of rural communities is also uncertain, but potentially large in at least some communities. On balance, the Board does not believe that the cost savings of the proposal clearly justify the potential adverse effects on certain rural communities.” All the commenters were opposed to defining a single abusive lending practice and excluding others. “Raising the threshold to $1 billion would more closely align the CRA regulation with what the banking agencies originally did when they adopted the small bank test in 1996,” American Bankers Association Executive Vice President Edward L. Yingling stated. “At that time, banks subject to the streamlined exam comprised 14 percent of the industry’s assets. Today, banks under $1 billion represent just over 15 percent of total assets. Furthermore, it makes no sense to subject a $251 million bank to the same examination as a $251 billion bank.” Yingling added, “In raising the threshold to $1 billion, the OTS noted that small institutions could now, `dedicate scarce resources in areas requiring greater attention, chief among these being implementation of anti-money laundering programs and Bank Secrecy Act compliance initiatives.’” “Community activists have claimed that the proposed changes to CRA would reduce community investments in rural areas,” ICBA President and CEO Camden R. Fine said. “Yet the overwhelming regulatory burden is also causing consolidation in the industry, especially among smaller community based banks-pushing the very banks most focused on their communities out of the community.” [email protected]