Fed aims to lay groundwork for interagency CRA overhaul


CRA is designed to combat discriminatory lending practices against lower-income borrowers — and minorities in particular. Governor Lael Brainard, the Fed board’s point person on the law, stressed that more work needs to be done to address racial disparities, despite a number of landmark civil rights statutes.

“Even with these critical laws, the legacy of discriminatory lending and systemic inequity in credit access remains in evidence today,” Brainard said in a speech to the Urban Institute.

“The typically minority neighborhoods demarcated in red in the old color-coded maps tend to be characterized by worse economic performance and opportunity even today,” she added. “Beyond these specific neighborhoods, research and surveys indicate that there are ongoing racial disparities in access to credit.”

In its proposed approach, the central bank would put greater emphasis on encouraging banks to support minority depository institutions, community development financial institutions, women-owned financial institutions and low-income credit unions.

The Fed document touches on many of the same questions as the OCC effort, with some similar concepts of how to answer them, reflecting interagency discussions that were ongoing for more than two years.

Those include: Should banks get credit for lending to poorer borrowers outside of areas where they have branches? How can the evaluation process be more predictable to encourage a wider range of community development activity?

Acting Comptroller of the Currency Brian Brooks said his agency looks forward to reviewing the comments.

“We are encouraged by our fellow regulators joining us in recognizing that we need to act to improve upon a system that was not working and to encourage banks to do more to support the communities they serve,” he said in a statement.

“We are pleased to see that many of the principles on which we worked together and that the OCC, FDIC, and Federal Reserve agreed upon prior to the finalization of the OCC rule in May will be part of their rulemaking discussion,” he added.

The central bank suggests putting in place metrics to more objectively evaluate banks’ performance, but its approach is more flexible than the OCC’s. The metrics would be “tailored to local market conditions, including demand and needs, and adjust to structural economic and business cycle changes,” according to a Fed staff memo.

Expectations and requirements would vary more by bank size and business model, and it would also have more separation between the tests for retail lending and community development, according to Fed officials. The central bank is also seeking to minimize how much burden it’s putting on banks to collect more data.

As for banks’ “assessment areas,” or the communities where their lending to lower-income borrowers is graded, the Fed would keep the current emphasis on branch locations. But it suggests using a nationwide assessment area for online banks, who are now graded only for activity around where they are physically located.

It also asks for feedback on judging banks based on areas where they have a certain threshold of deposits, though it notes that there isn’t “sufficiently granular” data to do that right now, or a certain threshold of lending.

Beyond that, the ANPR also contemplates designating “CRA deserts,” which are underserved, where banks might be able to get credit for community development activities outside of their assessment areas.

“Many of the places that I have visited, such as in [El Paso’s] colonias, the Mississippi Delta, Appalachia and Indian Country, have few bank branches and are located outside of branch-based assessment areas,” Brainard said in her speech. “Banks need to be confident about receiving CRA credit to seek out activities and investments in these areas.”

Like the OCC rule, it would contemplate a nonexhaustive illustrative list of community development activities that would count, as well as crediting a broader scope of services.

National Community Reinvestment Coalition head Jesse Van Tol, whose organization is suing the OCC over its CRA rule, said the Fed “doesn’t appear to introduce new problems” through its approach, in contrast to its fellow regulator.

“Also unlike the OCC rule, which had something for everyone to hate, this proposal has something for everyone to like,” he added. “That’s not to say everyone will love where they’re headed, but for those who don’t love it, I expect it to go down like cough syrup as opposed to like a s— sandwich (the OCC rule).”

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