Proposed CRA Amendments Impact Strategic Plan Option for Bank Evaluation
Under the proposed amendments to the Community Reinvestment Act (“CRA”), the Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; and Office of the Comptroller of the Currency (“agencies”) will maintain a strategic plan option as an alternative to the agencies’ evaluation. However, the proposal would amend the criteria of a proper strategic plan to “ensure that all banks are meeting their CRA obligation to serve low- and moderate-income individuals and communities.”
Proposed Improvements
The proposed amendments to these strategic plans are outlined in pages 352–360.
Establishing Goals.
Currently, banks’ strategic plans must include “measurable goals for helping to meet the credit needs in each assessment area, particularly the needs of low- and moderate-income census tracts and low- and moderate-income individuals.” However, banks “have flexibility in setting these goals.”
Under the proposed amendments, banks would be required to incorporate performance standards and metrics “appropriate for their size in setting their goals,” while remaining appropriate for their “capacity and constraints, product offerings, and business strategy.” Banks would still be given flexibility to “set different metrics from those that would otherwise be applicable if a bank is substantially engaged in activities outside of the scope of the standard performance tests.”
If a bank presents metrics or goals that differ from the applicable standards and metrics, the agencies will consider if such metrics or goals are “responsive to the characteristics and credit needs of its assessment areas and consider public comment and the bank’s capacity and constraints.” Additionally, if the goals differ, then the bank will be required to explain why its goals were appropriate.
Assessment Areas.
The CRA regulations provide different methods to evaluate a bank’s CRA performance depending on its asset size and business strategy. As such, CRA evaluations differ depending on if the bank is categorized as small, intermediate, or large. These categories are subject to change under the proposed amendments.
Small Banks:
Currently, “small” banks are those “with assets of less than $346 million as of December 31 of either of the prior two calendar years.” These banks are evaluated “under a lending test and may receive an “Outstanding” rating based only on their retail lending performance.”
Under the proposed amendments, small banks would be banks with an “average quarterly assets, computed annually, of less than $600 million in either of the prior two calendar years.”
Intermediate Banks:
Currently, intermediate banks are those “with assets of at least $346 million as of December 31 of both of the prior two calendar years and less than $1.384 billion as of December 31 of either of the prior two calendar years[.]” These banks are evaluated “under the lending test for small banks and a community development test.”
Under the proposed amendments, intermediate banks would be banks with an “average quarterly assets, computed annually, of at least $600 million in both of the prior two calendar years and less than $2 billion in either of the prior two calendar years.”
Large Banks:
Currently, large banks are those “with assets of more than $1.384 billion as of December 31 of both of the prior two calendar years.” These banks are evaluated “under separate lending, investment, and service tests.”
Under the proposed amendments, large banks would be banks with an “average quarterly assets, computed annually, of at least $2 billion in both of the prior two calendar years.”
Additionally, under the current framework, a banks is required to delineate one or more assessment areas in which its record of meeting its CRA obligations will be evaluated (“facility-based assessment”), including “geographic areas (metropolitan statistical areas (“MSAs”) or metropolitan divisions) or political subdivisions in which its main office, branches, and deposit-taking automated teller machines (“ATMs”) are located, as well as the surrounding geographies (i.e., census tracts) where a substantial portion of its loans are originated or purchased.”
Under the proposed framework, small and intermediate banks would be permitted to delineate facility-based assessment areas that include a partial county consisting of whole census tracts. The agencies “believe this flexibility would be appropriate for small and intermediate banks, because it reflects these banks’ lower asset levels and capacities.”
In contrast, large banks would be “required to delineate at least full counties for facility-based assessment areas.” The proposal provides that “no additional tailoring is necessary for establishing the assessment areas for large banks that are evaluated under an approved strategic plan.”
Additionally, a large bank electing to be evaluated under a strategic plan “would be required to delineate retail lending assessment areas,” in addition to facility-based assessment areas, “where it has an annual lending volume of at least 100 home mortgage loan originations or at least 250 small business loan originations in an MSA or nonmetropolitan area of a state for two consecutive years.” The agencies would consider “retail lending and community development financing activities outside of assessment areas,” which would permit large banks to establish goals for these activities.
Plan Goals.
In addition to continuing to require banks’ strategic plans to include “measurable goals for helping to meet the credit needs in each assessment area,” the proposed amendments would require the inclusion of goals for “each retail lending major product line . . . including those of a bank’s subsidiaries under the proposed Retail Lending Test that would be applied to non-strategic plan banks.”
Encourage Public Participation.
Currently, banks are required to seek public input by publishing their draft strategic plans in their local newspapers. However, the proposal states “the plans rarely garner public comments through this method,” so public input is rarely received.
Under the proposed amendments, banks would be required to post draft CRA strategic plans on the Federal banking agency’s website and the bank’s website or, if the bank does not have a website, in “at least one print newspaper or digital public publication of general circulation in each facility-based assessment area covered by the plan . . . for a period of at least 30 days.”
Additionally, banks should include an electronic means and a postal address that members can use to submit comments on the bank’s strategic plan. During the period of formal public comment, banks would have to make copies of the draft plan available at no cost in all offices of the bank and at a reasonable fee to cover copying and mailing, if requested.
To demonstrate that the banks have “meaningfully engaged” with their community in drafting CRA strategic plans, the proposed amendments would require banks to identify the specific “organizations or members of the public the bank engaged with in drafting their plan and a description of the process used to publicize its draft CRA strategic plan.” Additionally, banks would be required to provide the methods utilized to engage community stakeholders, “including, but not limited to, establishing an advisory board comprised of local stakeholders, convening public meetings, or conducting community outreach sessions to gather public comments and recommendations about the local credit needs.” Finally, banks would be required to include a comprehensive list of community stakeholders’ comments and recommendations received throughout that process.
Strategic Plan Amendments.
Currently, banks are permitted to request an amendment to their strategic plans, “if the plan goals are no longer appropriate due to a material change in circumstance.” In certain circumstances, a plan’s goals may be amended where the bank’s capacity has diminished or increased, as it would be inappropriate or unrealistic for the bank to perform in accordance with its original strategic plan. However, absent these circumstances, the current CRA “allows reliance on performance context to determine whether a bank has substantially met its plan goals.”
Under the proposed amendment, a bank would be required to amend its plan goals during the term of the plan “if a material change in circumstances impedes its ability to substantially meet approved plan goals, such as financial constraints caused by significant events that impact the local or national economy; or significantly increases its financial capacity and ability, such as through a merger or consolidation, to engage in retail lending, retail services, community development financing, or community development services activities referenced in an approved plan.” However, absent a material change, a bank seeking to amend its plan must explain why the amendment is necessary and appropriate.”
Agencies’ Requests for Feedback
The agencies have requested feedback on the following items:
Question 134. Should the strategic plan option continue to be available to all banks, or do changes in the proposed regulation’s assessment area provisions and the metrics approach reduce the need for the strategic plan option for banks with specialized business strategies?
Question 135. Large banks electing to be evaluated under a strategic plan would have activities outside of facility-based assessment areas considered through retail lending assessment areas and then outside retail lending assessment areas. Should small and intermediate banks electing to be evaluated under a strategic plan be allowed to delineate the same types of assessment areas? What criteria should there be for choosing additional assessment areas? Could such banks have the ability to incorporate goals for facility-based assessment areas and goals for outside of assessment areas?
Question 136. In assessing performance under a strategic plan, the agencies determine whether a bank has “substantially met” its plan goals. Should the agencies continue to maintain the substantially met criteria? If so, should it be defined and how? For example, as a percentage (e.g., 95 percent) of each measurable goal included in the plan, the percentage of goals met, or a combination of how many goals were not met and by how much?
Question 137. The agencies are considering announcing pending strategic plans using the same means used to announce upcoming examination schedules or completed CRA examinations and CRA ratings. What are the potential advantages or disadvantages to making the draft plans available on the regulators’ websites?
Question 138. In addition to posting draft plans on a bank’s website and the appropriate Federal banking agency’s website, should approved strategic plans also be posted on a bank’s website and the appropriate Federal banking agency’s website?
Instructions for Comment Submission
Comments on the proposed CRA amendments must be received on or before August 5, 2022. You must include “OCC” as the agency name and “Docket ID OCC-2022- 0002” in your comment. Comments may be submitted via the following methods:
Federal eRulemaking Portal – Regulations.gov: Go to https://regulations.gov/. Enter “Docket ID OCC-2022-0002” in the Search Box and click “Search.” Public comments can be submitted via the “Comment” box below the displayed document information or by clicking on the document title and then clicking the “Comment” box on the top-left side of the screen. For help with submitting effective comments please click on “Commenter’s Checklist.” For assistance with the Regulations.gov site, please call (877) 378-5457 (toll free) or (703) 454-9859 Monday-Friday, 9am-5pm EST or e-mail regulations@erulemakinghelpdesk.com.
Mail: Chief Counsel’s Office, Attention: Comment Processing, Office of the Comptroller of the Currency, 400 7th Street, SW, suite 3E-218, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street, SW, suite 3E-218, Washington, DC 20219.