By Kris Siglin, NCST
The Office of the Comptroller of the Currency and the Federal Deposit Insurance – which together regulate 85 percent of all banks – have proposed new CRA regulations that would make the most dramatic changes to the rule since the lending, service and investment tests were created in 1995. While banks and community advocates alike agree that the CRA regulations need to be updated to keep pace with changes in the banking system, such as interstate branching and the rise of online deposits, the proposed rule would sabotage the CRA and undermine the work all of us do in the community development field.
Enacted in 1977, CRA is a broad, affirmative obligation for banks to meet the credit needs of low- and moderate-income communities. Under CRA, banks receive ratings based on the amount of lending and investments in low- and moderate-income communities and on the distribution of and the services offered by their branches. The CRA statute is implemented by a detailed and complex set of regulations that have to date been generally consistent across all three bank regulatory agencies.
In 2018 the OCC solicited input from stakeholders on CRA modernization. Among other changes, the proposal and floated the idea of measuring CRA compliance with a “single ratio” of dollar volume of CRA activities divided by bank deposits. The OCC received over 1500 letters in response, most of which opposed the single ratio. Nevertheless, the OCC has persisted with this idea and included it in the proposed rule.
NCST and many other community stakeholders continues to consider the single ratio an existential threat. Among other things, reducing CRA compliance to a simple ratio will discourage low value mortgage lending or smaller investments in favor of larger, simpler transactions. It raises the possibility of large national banks focusing their activities in places with higher property values or on very large projects as an easier way to meet their CRA obligations. While the proposal contains a retail lending test that complements the ratio, it is a pass/fail, and banks need to pass in only 51% of their assessment areas.
There are many other changes in the proposed rule in addition of the “single ratio.” It creates a lengthy new list of activities eligible for CRA credit, including the financing of sports stadiums and infrastructure like bridges and roads. Most troubling for NCST, it eliminates “neighborhood stabilization” as part of the definition of community development. All of these changes will undermine incentives for banks to invest capital in distressed housing markets.
Notably, the third agency that administers CRA, the Federal Reserve did not join in the other agencies in the CRA rulemaking. In fact, in a recent speech at the Urban Institute, Lael Brainard, a Member of the Board of Governors of the Federal Reserve System, raised serious questions about the haste and lack of data behind the proposed rule.
While NCST will file its own comment letter and will seek sign-ons for that letter, we believe it’s essential for the OCC and FDIC to receive personalized comment letters from as many organizations as possible. To help you comment, here are links to the proposal as published in the Federal Register, an initial assessment from the National Community Reinvestment Coalition (NCRC), and an excellent analysis from the National Alliance of Community Economic Development Associations (NACEDA).
Please e-mail me if you have any questions or would like assistance in preparing a comment letter.
Comments on the proposed rule are due on March 9, 2020.
Kris Siglin serves as NCST’s Vice President of Policy and Partnerships.