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CRA and Community Development

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Title: CRA and Community Development


1
An Overview of the Community Reinvestment Act
Barry Wides Deputy Comptroller, Community
Affairs Office of the Comptroller of the Currency
2
CRA Overview
  • Federal Bank Regulators
  • Office of the Comptroller of the Currency
  • Charters, regulates and examines national banks
  • Office of Thrift Supervision
  • Charters, regulates and examines federally
    chartered thrift institutions
  • Federal Deposit Insurance Corporation
  • Regulates and examines state, non-member banks
  • Federal Reserve System
  • Regulates and examines state, member banks

3
CRA Overview
  • CRA Statute --12 USC 2901 (Reg. 12 CFR 25)
  • Regulated financial institutions have an
    continuing and affirmative obligation to help
    meet the credit needs of the communities in which
    they operate.
  • In connection with its examination of a financial
    institution, the appropriate Federal financial
    supervisory agency shall assess the institutions
    record of meeting the credit needs of its entire
    community, including LMI neighborhoods,
    consistent with the safe and sound operation of
    such institution.

4
CRA Overview
  • The bank regulatory agencies take into account
    the CRA record of a bank or thrift when it
    applies to open a new branch or merge with or
    acquire another institution.
  • CRA ratings are made public. Each bank or thrift
    must maintain a public file that contains the
    public section of its most recent CRA performance
    review, a list of its services and branches,
    written comments from the public, and certain
    other information.

5
CRA Overview
  • Bank Performance Tests
  • Large Bank (assets over 1.061 billion)
  • Intermediate Small Bank (265 million to 1.061
    billion)
  • Small Bank (under 265 million)

6
CRA Overview
  • Bank Performance Tests (cont.)
  • Strategic Plan
  • Bank develops its own strategic plan to be
    evaluated by rather than use the defined
    standards. Such a plan must be open to public
    comment and must be approved by the banks
    federal regulatory agency before it can go into
    effect.
  • Wholesale/Limited Purpose Banks
  • Wholesale banks do not make loans to retail
    customers, and limited purpose banks, which only
    offer a few products (such as credit cards or
    auto loans), also receive CRA ratings. These
    ratings are based on different standards since
    the banks activities are more limited.

7
Getting Ready for the Exam
  • Establishing the performance context for a
    banks CRA examination
  • What is the makeup of the community?
  • What are the local and regional economic
    conditions?
  • What kinds of opportunities exist for serving the
    community through lending, investments, and
    services?
  • What is the banks business strategy and what
    products does the bank offer?
  • How is the bank is doing financially?
  • What CRA rating has the bank received in the past
    and how have other local institutions have been
    doing on their CRA performance?
  • What does the bank sees as the credit needs of
    the community?
  • What do individuals, community and civic
    organizations, and businessesas well as state,
    local, and tribal governments - think the
    community's credit needs are?

8
Key Definitions Assessment Areas
  • Each bank is evaluated on how well it serves its
    assessment area
  • Assessment area
  • Geographies in which bank has its main office,
    branches, and deposit taking ATMs
  • Surrounding areas where bank has originated or
    purchased a substantial portion of its loans
  • Must consist of whole geographies

9
Key DefinitionsCommunity Development
  • Community Development
  • Affordable housing for LMI individuals
  • Community services targeted to LMI individuals
  • Activities that promote econ dev by financing
    biz/farms meeting size requirements of SBA Dev Co
    or SBIC Programs, or gross revs

10
Key DefinitionsCommunity Development
  • Community Development (continued)
  • Activities that revitalize/stabilize
  • LMI geographies
  • Designated disaster areas
  • Distressed/underserved non-metro, middle-income
    geographies

11
Key DefinitionsSmall Business/Farm
  • Small business loans
  • Included in loans to small business as defined
    by call report instructions, RC-C, II
  • Generally, those w/orig amounts
  • Small farm loans
  • Included in loans to small farms as defined by
    call report instructions
  • Generally, those w/orig amounts

12
Key DefinitionsQualified Investments
  • Qualified investments
  • Lawful investment, deposit, membership share, or
    grant that has community development as its
    primary purpose
  • Must meet one of four components of community
    development definition (see previous slide)

13
Large Bank CRA Evaluation Lending Test
  • When evaluating a bank's lending activities and
    the borrowers it reaches, examiners analyze loans
    for home mortgages, small businesses, small
    farms, and community development (as well as
    consumer loans, in some cases)
  • number and total dollar amount of loans
  • geographic distribution of loansthat is, the
    proportion of the bank's total loans made within
    its assessment area how these loans are
    distributed among low-, moderate-, middle-, and
    upper income locations
  • characteristics of borrowershow loans are
    distributed to people at various income levels
    and to small businesses and small farms
  • activity in community developmenthow many and
    what dollar amount of loans benefit low- and
    moderate-income people or geographic areas? how
    many and what size loans promote small business
    or small farm development? how complex or
    creative are these loans?
  • whether the bank uses flexible lending practices
    to address the credit needs of low- or
    moderate-income individuals or neighborhoods.

14
Lending Test Examples
  • Examples of community development loans
  • Loans to borrowers for affordable housing
    rehabilitation and construction and permanent
    financing of multifamily rental property serving
    LMI persons
  • Loans to nonprofit organizations serving
    primarily LMI housing or other community
    development needs
  • Loans to financial intermediaries, including
    CDFIs or community loans funds/pools that
    primarily lend to (or facilitate lending to)
    promote community development
  • Loans to local, state, and tribal governments for
    community development activities

15
Large Bank CRA Evaluation Investment Test
  • When evaluating a bank's investments, examiners
    look not only at a bank's assessment area but
    also at a broader statewide or regional area
    surrounding it. Examiners want to know
  • how much money the bank has invested
  • how innovative or complex the investments are
  • how well the investments respond to credit and
    community development needs
  • whether the investments are a different type from
    those provided by most other investors.

16
Investment Test Examples
  • Examples of qualified investments
  • Investments, grants, deposits or shares in or to
  • financial intermediaries that lend in LMI areas
    or to LMI people in order to promote CD
  • CDFIs
  • Minority-, women-owned financial institutions
  • Low-income or community development CUs
  • Organizations engaged in affordable housing
    rehab
  • Organizations promoting economic development by
    financing small biz, including small biz
    investment companies

17
Investment Test Examples
  • Examples of qualified investments
  • LIHTCs
  • Targeted state and municipal obligations that
    support affordable housing or other community
    development needs
  • Contributions or investments in non-profit
    organizations serving LMI housing or other CD
    needs
  • Contributions or investments in organizations
    supporting activities essential to sustain
    economic development

18
Large Bank CRA Evaluation Service Test
  • When evaluating retail and community development
    services, examiners focus on how well these
    services help meet the credit needs of the
    institution's community. In the area of retail
    banking, examiners look at
  • how branches are distributed throughout the
    community
  • the bank's history of opening and closing
    branches, particularly those serving low- or
    moderate-income people or geographic areas
  • what alternative systems (such as ATMs or
    telephone, computer, or by-mail banking services)
    the bank provides for delivering services to low-
    and moderate-income areas and individuals and
    whether the range of services provided meets the
    needs of various neighborhoods at all income
    levels.
  • Examiners also consider how responsive and
    creative a bank is in providing or helping other
    organizations provide financial services that
    address special credit needs in the community or
    regionfor example, more affordable housing or
    more available credit.

19
Community Development Services Examples
  • Examples of community development services
  • Providing technical assistance on financial
    matters to nonprofit, tribal, or government
    organizations serving low- and moderate-income
    housing
  • Lending employees to provide financial services
    for organizations facilitating affordable housing
    construction or rehabilitation or development of
    affordable housing
  • Providing technical assistance on financial
    matters to small businesses or community
    development organizations, which might include
  • Furnishing financial services training for staff
    and management
  • Contributing accounting/bookkeeping services
  • Assisting in fundraising, including soliciting or
    arranging investments.

20
Intermediate Small BankCRA Evaluation
  • Intermediate small banks are those institutions
    with assets between 265 million and 1.065
    billion.
  • Lending activities (similar to large banks, but
    excludes community development loans and
    evaluation of innovative or flexible lending
    practices)
  • Community development activities
  • Community development lending
  • Qualified investments
  • Community development services

21
Small Bank CRA Evaluation
  • Small banksthose with total assets of less than
    265 million, either independent or an affiliate
    of a holding company with total assets of less
    than 1.065 billionare evaluated by more
    streamlined standards than those used for larger
    banks. At a small bank, examiners look at
  • the share of the bank's deposits used to make
    loans (loan-to-deposit ratio)
  • the percentage of loans made within the bank's
    assessment area (in/out ratio)
  • its record of lending to borrowers of different
    income levels as well as businesses and farms of
    different sizes
  • the geographic distribution of its loans
  • its record of taking action in response to
    written complaints about its performance in
    helping meet the community's credit needs.

22
CRA Overview
  • Public Evaluation (PE)
  • Public document
  • Demographic information
  • Performance context
  • Ratings given

23
Ratings
  • Five possible ratings for lending, investment,
    and service tests
  • Outstanding
  • High satisfactory
  • Low satisfactory
  • Needs to improve
  • Substantial noncompliance

24
Ratings
  • Lending Investment Service
  • Outstanding 12 6 6
  • High Sat 9 4 4
  • Low Sat 6 3 3
  • Needs to Improve 3 1 1
  • Substantial Noncompliance 0 0 0

25
Ratings
  • Four possible composite ratings
  • Points Ratings
  • 20 Outstanding
  • 11-19 Satisfactory
  • 5-10 Needs to Improve
  • 0 - 4 Substantial Noncompliance
  • Regardless of point total, Lending Test must
    be at least Low Sat for overall rating to be
    Satisfactory or higher.

26
Criteria for a Large Banks CRA Rating Lending
Test
Criteria for a Large Banks CRA Rating Lending
Test
27
Criteria for a Large Banks CRA Rating Service
Test
Criteria for a Large Banks CRA Rating Service
Test
28
Criteria for a Large Banks CRA Rating
Investment Test
Criteria for a Large Banks CRA Rating
Investment Test
29
CRA Public File
  • Banks must maintain a public file, updated as of
    April 1 each year, that includes the following
    information
  • For the current year and two previous years, all
    written comments from the public about how the
    bank is helping to meet community credit needs
    (and bank response)
  • If a bank received a less-than-satisfactory CRA
    rating, a description of efforts to improve its
    performance and update that report every 3 months
  • A list of the banks branches and the geographic
    areas they serve. It must also show information
    for any branches that have opened or closed
    during the current year and previous two years

30
CRA Public File (cont)
  • A list of services (including hours of operation,
    available loan and deposit products, and fees)
    offered at the banks branches. The list must
    note any significant differences in services at
    particular branches.
  • A map of the banks assessment area showing its
    boundaries and identifying the various geographic
    areas within it, either on the map or in a
    separate list.
  • A copy of the banks strategic plan if the bank
    is evaluated by one.

31
Commenting on CRA Performance
  • Meet with bank management or directors
  • Write a letter stating you want it included in
    your banks CRA public file
  • For national banks, contact your Community
    Affairs Officer

32
Community AffairsField Locations
Central Paul Ginger (Chicago) (312)
360-8876 Norma Polanco-Boyd (Cleveland) (216)
447-8866
Northern Denise Kirk-Murray (New York) (212)
790-4053 Bonita Irving (Boston) (617) 854-6547
Southern Karol Klim (Atlanta) (678) 731-9723
x252 David Lewis (Dallas) (214)
720-7027 Scarlett Duplechain (New Orleans) (504)
828-6555
Western Susan Howard (Glendale, CA) (818)
240-5175 Dave Miller (Denver) (720) 475-7670
33
Governing CRA Policies
  • CRA Regulation
  • CRA Qs and As
  • Examination Procedures
  • http//www.occ.gov/crainfo.htm

34
OCC Resources
  • Upcoming CRA Examinations
  • http//www.occ.gov/cra/duecra.htm
  • Past CRA Examinations
  • http//www.occ.gov/cra/crasrch.htm
  • Community Affairs Publications
  • http//www.occ.gov/cdd/commfoc.htm
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