Streamlined Lending Test is similar to small ban

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CRA 101An introduction to the Community
Reinvestment Act(updated April 2006)

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What is the CRA?

• CRA stands for
• The Community Reinvestment Act of 1977
• The regulations implementing the CRA were revised
  in 1989, 1995, and 2005.

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What is the purpose of the CRA?

• Congress found that
• 1) regulated financial institutions are required
  by law to demonstrate that their deposit
  facilities serve the convenience and needs of the
  communities in which they are chartered to do
  business
• 2) the convenience and needs of communities
  include the need for credit services as well as
  deposit services and
• 3) regulated financial institutions have a
  continuing and affirmative obligation to help
  meet the credit needs of the local communities in
  which they are chartered.

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Who are the Regulators?

• Federal Reserve Bank (FRB)
• Regulates all bank holding companies, financial
  holding companies and state chartered member
  banks.
• Office of the Comptroller of the Currency (OCC)
• Regulates banks with a national charter.

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Who are the Regulators?

• Federal Deposit Insurance Corporation (FDIC)
• Regulates non-Federal Reserve member state
  chartered banks.
• Office of Thrift Supervision (OTS)
• Regulates savings and loan institutions.

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What is the relationship between the regulators
and the CRA?

• The process used to determine a financial
  institutions compliance with the act is a CRA
  examination. The results of the CRA examination
  are considered when a financial institution
  applies to open a branch, merge with another
  institution, or become a Financial Holding
  Company.

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Bank Examination Categories

• FRB, OCC, and FDIC
• exam categories for banks
• Small Bank
• assets of less than 250 million
• Intermediate Small Bank
• assets between 250 million and 1 billion
• Large Bank
• assets of 1 billion or more

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Thrift Examination Categories

• OTS exam categories for thrifts
• Small Thrift
• assets of less than 1 billion
• Large Thrift
• assets of 1 billion or more

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Examination Categories

• Limited purpose
• offers only a narrow product line (i.e. credit
  cards or motor vehicle loans)
• Wholesale Bank
• does not generally offer bank products to retail
  customers
• Strategic Plan Option
• alternative assessment method voluntarily chosen
  by any bank that includes a written plan approved
  by the regulators. The banks performance is
  measured against this plan.

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The Performance Context

• The performance context is information about the
  institution, its community and its competitors.
• The examiners prepare the Performance Context.
• Although banks are not required to do so, it is
  helpful if they contribute to this process.

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Performance Standards

• Small banks and thrifts have 5 performance
  standards
• Loan-to-deposit ratio
• Percentage of credit activities in the banks
  assessment area
• Record of banks credit activities to
• borrowers of different income levels
• businesses and farms of different sizes
• Geographic distribution of loans
• Action taken in response to written complaints

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Performance Standards

• Small Banks and Thrifts
• Qualified community development investments and
  services are not required, but may be used to
  enhance a satisfactory rating to an outstanding.

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Performance Standards

• Intermediate Small Banks
• Two-part exam Lending Test and Community
  Development Test
• Streamlined Lending Test is similar to small bank
  examination
• Community Development Test includes community
  development loans, services, and investments

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Performance Standards

• Large Banks and Thrifts have 3 performance
  standards
• 1. Lending Test
• 2. Investment Test
• 3. Service Test

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Community Development Defined

• Community development means
• Affordable housing (including multifamily rental
  housing) for low- or moderate-income (LMI)
  individuals
• Community services targeted to LMI individuals
• Activities that promote economic development by
  financing small businesses or small farms
• Activities that revitalize or stabilize LMI
  geographies (for banks only, also includes
  certain distressed or underserved rural areas and
  areas affected by disasters)

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Community Development

• What determines low- and moderate-income?
• Low-income means an individual income that is
  less than 50 of the area median income.
• Moderate-income means an individual income that
  is between 50 - 80 of the area median income.

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Assessment Area

• Institutions define their Assessment Area.
• The Assessment Area is the geographic area within
  which the examiners will evaluate a banks CRA
  performance.
• Assessment Areas must consist of whole
  geographies and/or political divisions.
• There should be no unexplained, conspicuous gaps.

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The Lending Test

• The lending test evaluates a banks record of
  helping to meet the credit needs of its
  assessment area through its lending activities by
  considering a banks home mortgage, small
  business, small farm, and community development
  lending.

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Examples of community development loans

• Loans to borrowers for affordable housing
  rehabilitation and construction.
• Loans to not-for-profit organizations serving
  primarily LMI housing or other community
  development needs.
• Loans to financial intermediaries including
  CDFIs, CDCs, and community loan funds or pools.
• Loans to local, state, and tribal governments for
  community development activities.

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The Investment Test

• The investment test evaluates a banks record of
  helping to meet the credit needs of its
  assessment area through qualified investments and
  grants that benefit its assessment area or a
  broader statewide or regional area that includes
  the banks assessment area.

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Examples of qualified investments

• Investments in or grants to
• financial intermediaries that lend in LMI areas
  or to LMI individuals in order to promote
  community development
• organizations that promote economic development
  by financing small business
• facilities that promote community development in
  LMI areas for LMI individuals
• projects eligible for low-income housing tax
  credits.

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The Service Test

• The service test evaluates a banks record of
  helping to meet the credit needs of its
  assessment area by analyzing both the
  availability and effectiveness of a banks
  systems for delivering retail banking services
  and the extent and innovativeness of its
  community development services.

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What is a community development service?

• A community development service is a service
  that
• has as its primary purpose community development
• is related to the provision of financial services

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Examples of community development services

• Providing technical assistance on financial
  matters to nonprofit, tribal or government
  organizations serving LMI housing or economic
  revitalization and development needs.
• Serving on a board of organizations facilitating
  affordable housing construction and
  rehabilitation or development of affordable
  housing.
• Developing and teaching financial education
  curricula for LMI individuals.

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Performance Standards

• Large Thrifts have a different exam process.
  They can choose what weights to give to lending,
  services, and investments.
• Lending can be anywhere from 50 to 100 of the
  exam, with any remainder made up by any
  combination of investments and services.

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Performance Ratings

• Outstanding
• Satisfactory
• Needs to Improve
• Substantial Non-compliance

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The Public

• During the Performance Context process, examiners
  contact community based organizations to get
  information about the credit needs of the
  community and the performance of financial
  institutions in meeting those needs.

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Public Access

• Public Notice
• Notice that the public is entitled to certain
  information about the banks operations and
  performance under the CRA must be posted in each
  of the banks branches.
• Public File
• Contains information about the institutions CRA
  performance. Must be made available for viewing
  by members of the community.
• Ensures public access to timely and accurate CRA
  information about the institution.

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Public Access

• Public Comments
• The public has the right to comment on a banks
  performance under the CRA, and to comment on any
  application submitted to the federal bank
  regulatory changes.
• For exam schedules, CRA data, HMDA data, and
  application information, see the agencies
  websites
• www.ffiec.gov (for CRA and HMDA data)
• www.federalreserve.gov
• www.occ.treas.gov
• www.fdic.gov
• www.ots.treas.gov

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Conclusion

• The CRA works in conjunction with other fair
  lending laws to create opportunities for
  community development professionals and financial
  institutions to build partnerships and strengthen
  relationships in our shared goal of sustainable
  community development.