Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment; Notice, 68450-68456 [05-22468]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION
• FEDERAL RESERVE SYSTEM
• Office of the Comptroller of the Currency
• DEPARTMENT OF THE TREASURY
• Comptroller of the Currency

[Federal Register Volume 70, Number 217 (Thursday, November 10, 2005)]
[Notices]
[Pages 68450-68456]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-22468]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket No. 05-17]

FEDERAL RESERVE SYSTEM

[Docket No. OP-1240]

FEDERAL DEPOSIT INSURANCE CORPORATION

RIN 3064-AC97


Community Reinvestment Act; Interagency Questions and Answers 
Regarding Community Reinvestment; Notice

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC); 
Board of Governors of the Federal Reserve System (Board); Federal 
Deposit Insurance Corporation (FDIC).

ACTION: Notice and request for comment.

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SUMMARY: This proposal would revise guidance of the staffs of the OCC, 
Board, and FDIC (collectively, ``the agencies'') relating to the 
Community Reinvestment Act (``the Act'' or ``CRA'') to address topics 
related to the revisions the agencies made to their regulations that 
implement the CRA. After reviewing comments on this proposal, these 
questions and answers will be added to the Interagency Questions and 
Answers, an existing document that contains informal staff guidance for 
examiners and other agency personnel, financial institutions, and the 
public. Public comment is invited on the proposed guidance, as well as 
any other community reinvestment issues.

DATES: Comments on the proposed questions and answers are requested by 
January 9, 2006.

ADDRESSES: Comments should be directed to:
    OCC: You should include OCC and Docket Number 05-17 in your 
comment. You may submit comments by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     OCC Web Site: https://www.occ.treas.gov. Click on ``Contact 
the OCC,'' scroll down and click on ``Comments on Proposed 
Regulations.''
     E-mail Address: regs.comments@occ.treas.gov.
     Fax: (202) 874-4448.
     Mail: Office of the Comptroller of the Currency, 250 E 
Street, SW., Mail Stop 1-5, Washington, DC 20219.
     Hand Delivery/Courier: 250 E Street, SW., Attn: Public 
Information Room, Mail Stop 1-5, Washington, DC 20219.
    Instructions: All submissions received must include the agency name 
(OCC) and docket number for this notice. In general, the OCC will enter 
all comments received into the docket without change, including any 
business or personal information that you provide. You may review 
comments and other related materials by any of the following methods:
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC's Public Information Room, 250 E 
Street, SW., Washington, DC. You can make an appointment to inspect 
comments by calling (202) 874-5043.
     Viewing Comments Electronically: You may request e-mail or 
CD-ROM copies of comments that the OCC has received by contacting the 
OCC's Public Information Room at regs.comments@occ.treas.gov.
     Docket: You may also request available background 
documents and project summaries using the methods described above.
    Board: You may submit comments, identified by Docket No. OP-1240, 
by any of the following methods:
     Agency Web site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include docket 
number in the subject line of the message.
     Fax: 202/452-3819 or 202/452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, except as necessary for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information.
    Public comments may also be viewed electronically or in paper in 
Room MP-500 of the Board's Martin Building (20th and C Streets, NW.) 
between 9 a.m. and 5 p.m. on weekdays.
    FDIC: You may submit comments, identified by RIN number 3064-AC97 
by any of the following methods:
     Agency Web site: https://www.fdic.gov/regulations/laws/
federal/propose.html. Follow instructions for submitting comments on 
the Agency Web site.
     E-mail: Comments@FDIC.gov. Include the RIN number in the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m.
    Instructions: All submissions received must include the agency name 
and RIN number. All comments received will be posted without change to 
https://www.fdic.gov/regulations/laws/federal/propose.html including any 
personal information provided.

FOR FURTHER INFORMATION CONTACT:
    OCC: Margaret Hesse, Special Counsel, Community and Consumer Law 
Division, (202) 874-5750; or Karen Tucker, National Bank Examiner, 
Compliance Policy Division, (202) 874-4428, Office of the Comptroller 
of the Currency, 250 E Street, SW., Washington, DC 20219.
    Board: Anjanette M. Kichline, Supervisory Consumer Financial 
Services Analyst, (202) 785-6054; Catherine M.J. Gates, Senior 
Supervisory Consumer Financial Services Analyst, (202) 452-3946; 
Kathleen C. Ryan, Counsel, (202) 452-3667; or Dan S. Sokolov, Senior 
Attorney, (202) 452-2412, Division of Consumer and Community Affairs, 
Board of Governors of the Federal Reserve System, 20th Street and 
Constitution Avenue, NW., Washington, DC 20551.
    FDIC: Robert W. Mooney, Chief, (202) 898-3911, or Pamela Freeman, 
Policy Analyst, (202) 898-6568, CRA and Fair Lending Policy Section, 
Division of Supervision and Consumer Protection; Richard M. Schwartz, 
Counsel, Legal Division, (202) 898-7424; Susan van den Toorn, Counsel, 
Legal Division, (202) 898-8707; Federal Deposit Insurance Corporation, 
550 17th Street, NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Background

    On August 2, 2005, the OCC, Board, and FDIC published in the 
Federal

[[Page 68451]]

Register a joint final rule revising their Community Reinvestment Act 
regulations (70 FR 44256). The joint final rule became effective 
September 1, 2005.
    The joint final rule addressed regulatory burden imposed on small 
banks with an asset size between $250 million and $1 billion by 
exempting them from CRA loan data collection and reporting obligations. 
It also exempted such banks from the large bank lending, investment, 
and service tests, and made them eligible for evaluation under the 
small bank lending test and a flexible new community development test. 
Holding company affiliation is no longer a factor in determining which 
CRA evaluation standards apply to a bank.
    The joint final rule also revised the term ``community 
development'' to include activities to revitalize and stabilize 
distressed or underserved nonmetropolitan middle-income areas and 
designated disaster areas. Finally, the rule adopted amendments to the 
regulations to address the impact on a bank's CRA rating of evidence of 
discrimination or other credit practices that violate an applicable 
law, rule, or regulation.
    To help financial institutions meet their responsibilities under 
the CRA and to increase public understanding of the CRA regulations, 
the staffs of the OCC, Board, FDIC, and Office of Thrift Supervision 
have previously published answers to the most frequently asked 
questions about the community reinvestment regulations of the four 
federal financial regulatory agencies. This guidance is intended to 
provide informal staff guidance for use by examiners and other agency 
personnel, financial institutions, and the public, and is supplemented 
periodically. The staffs of the OCC, Board, and FDIC are jointly 
issuing these proposed Questions and Answers to provide additional 
guidance specific to the new OCC, Board, and FDIC rules issued on 
August 2, 2005, that apply to their institutions.
    Just as in the Interagency Questions and Answers currently in 
effect (65 FR 36620 (July 12, 2001)), the proposed questions and 
answers are grouped by the provision of the CRA regulations that they 
discuss and are presented in the same order as the regulatory 
provisions. The proposed questions and answers employ the same 
abbreviated method to cite to the regulations that the agencies used in 
the Interagency Questions and Answers. Because the regulations of the 
three agencies are substantially identical, corresponding sections of 
the different regulations usually bear the same suffix. Therefore, the 
proposed questions and answers cite only to the suffix. For example, 
the small bank performance standards for national banks appear at 12 
CFR 25.26; for Federal Reserve System member banks supervised by the 
Board, they appear at 12 CFR 228.26; and for nonmember state banks, at 
12 CFR 345.26. Accordingly, the citation in this document would be to 
Sec.  -- .26. Each question is numbered using a system that consists of 
the regulatory citation (as described above) and a number, connected by 
a dash. For example, the first proposed question addressing Sec.  --
--.12(g)(4) would be identified as Sec.  ----.12(g)(4)-1.
    As a result of technical changes made to the agencies' regulations 
(70 FR 15570 (March 28, 2005)) and the recent revisions mentioned 
above, some of the numbering in the existing 2001 Interagency Questions 
and Answers does not correspond to the appropriate sections of the 
revised regulation. However, in the proposed questions and answers, if 
a reference is made to an existing question and answer, the number of 
the existing question and answer, as published in the 2001 Interagency 
Questions and Answers, is given, even if the old reference does not 
accurately describe the current provision in the regulations. When the 
proposed questions and answers are adopted as final and the rest of the 
questions and answers are updated to reflect the revisions to the 
regulations made by the three agencies, as discussed above, the 
references in the questions and answers will be updated.

Proposed Questions and Answers

    Because the agencies made several significant revisions to the 
regulations, new Interagency Questions and Answers addressing those 
revisions are necessary. Therefore, thirteen new questions and answers 
addressing the new revisions are being published for comment.

Revised ``Community Development'' Definition

    Of the thirteen proposed new questions and answers, seven questions 
and answers address the revised definition of ``community 
development,'' which includes activities that revitalize or stabilize a 
distressed or underserved nonmetropolitan middle-income geography or a 
designated disaster area. First, the proposed guidance clarifies that 
the revised definition of ``community development'' applies to all 
banks, and not only to intermediate small banks. It also discusses what 
is meant by a designated disaster area. Disaster areas are designated 
by Federal agencies or States, and these designations are made public. 
Therefore, the agencies do not intend to maintain a separate list of 
all government-designated disaster areas.
    The guidance also proposes a one-year ``lag period'' during which a 
bank may continue to receive consideration for activities in a disaster 
area for which the Federal or state designation has expired. The lag 
will help promote investments that may take an extended period of time 
to arrange and that have extended periods of duration that may continue 
to provide meaningful benefits to the community after the government 
designation has ended. During the proposed lag period, community 
development activities will continue to receive consideration just as 
they would have if the area were still designated as a disaster area. 
Comment is specifically requested on the appropriateness of a one-year 
lag period. Is one extra year generally long enough for a bank to 
finish the preparations for a community development project investment 
or loan, the development of which was commenced while the area was 
still a designated disaster area? Should a longer or shorter period be 
selected? If so, how long and why?
    Comment is also requested on the appropriate description of a 
disaster designation's duration. The proposed guidance would recognize 
the revitalization and stabilization efforts in disaster areas during 
such time that Federal, State, or local governments have determined 
that the area continues to be affected by the disaster event, and 
provides a one-year period after the expiration of the disaster 
designation in which revitalization and stabilization activities 
targeted to those areas will receive favorable recognition. The 
agencies specifically seek comment on this aspect of the proposal. In 
particular, the agencies seek comment on whether the period starting 
with ``designation'' and ending with ``expiration'' of the designation 
is the most appropriate and meaningful way to describe the duration of 
the effect of the disaster for CRA purposes. Or, should the guidance be 
more broadly worded to reflect other relevant governmental measures of 
the duration of a disaster event? For example, should the guidance also 
refer to ``periods of assistance,'' ``registration periods,'' or other 
relevant timeframes?
    The proposed guidance next explains that all revitalization 
activities in designated disaster areas are not considered equally--
those that are most responsive to community needs, including the needs 
of low- or moderate-income individuals, may be given more weight than 
other revitalization and stabilization activities

[[Page 68452]]

in designated disaster areas. Bank activities to revitalize and 
stabilize a designated disaster area will be evaluated, as appropriate, 
based on the particular circumstances and needs of the area. The 
guidance also includes a statement regarding loans to individuals 
displaced by a disaster and refers to relevant existing guidance.
    The proposed guidance also describes the criteria that the agencies 
use to identify distressed or underserved nonmetropolitan middle-income 
geographies and states that the list of such geographies will be 
reviewed and updated annually. Additional detail about the data sources 
used in developing the list of distressed and underserved geographies 
will be posted on the FFIEC Web site (https://www.ffiec.gov) with the 
list.
    Similar to the ``lag period'' proposed in connection with 
activities in designated disaster areas, a one-year lag period also is 
proposed during which a bank may continue to receive consideration for 
activities in a distressed or underserved middle-income nonmetropolitan 
area that has been removed from the list. Because some community 
development projects take an extended amount of time to arrange and 
fund, the staffs of the agencies believe that it is important to lessen 
the impact on a bank's investment planning and implementation that will 
occur once a distressed or underserved geography has been removed from 
the designated list. During the proposed lag period, community 
development activities will continue to receive consideration just as 
they would have if the geography were still designated as a distressed 
or underserved area. Comment is specifically requested on the 
appropriateness of a one-year lag period. Is one extra year generally 
long enough for a bank to finish the preparations for a community 
development project investment or loan, the development of which was 
commenced while the geography was a designated distressed or 
underserved geography? Should a longer period be selected? If so, how 
long and why?
    The proposed guidance also clarifies that revitalization and 
stabilization activities in middle-income nonmetropolitan distressed 
geographies are evaluated differently than those in middle-income 
nonmetropolitan underserved geographies. Generally, a revitalization or 
stabilization activity in a distressed middle-income nonmetropolitan 
geography that helps to attract and retain businesses and residents or 
is part of a bona fide revitalization or stabilization plan will 
receive positive consideration. In contrast, in an underserved middle-
income nonmetropolitan area, revitalization or stabilization activities 
are activities that facilitate the construction, expansion, 
improvement, maintenance, or operation of essential infrastructure or 
facilities for health services, education, public safety, public 
services, industrial parks, or affordable housing. These activities 
generally will be considered to meet essential community needs and 
qualify for consideration as a community development activity, so long 
as the infrastructure, facility, or affordable housing serves low- and 
moderate-income individuals.
    Finally, the proposed guidance explains when housing for middle- 
and upper-income persons in distressed or underserved nonmetropolitan 
middle-income geographies or designated disaster areas may be 
considered as a community development activity.

Community development test applicable to intermediate small banks

    Three questions and answers are proposed to address the community 
development test applicable to intermediate small banks and how these 
banks will be evaluated under it. First, the proposed guidance 
discusses what examiners will consider when they review the 
responsiveness of an intermediate small bank's community development 
activities to the community development needs of the area. Next, the 
proposed guidance addresses how the community development test for 
intermediate small banks will be applied flexibly so that banks can 
address community development needs in their assessment areas in the 
most responsive manner. Finally, the proposed guidance includes a 
question and answer that explains what examiners will consider when 
evaluating the provision of community development services by an 
intermediate small bank in the community development test.

Treatment of Small Banks' Affiliates' Activities

    The proposed guidance clarifies that any small bank (including an 
intermediate small bank) may request that activities of an affiliate in 
the small bank's assessment area(s) be considered in its performance 
evaluation. Those activities will be considered in the small bank's 
performance evaluation subject to the same constraints that apply to 
large institutions' affiliate activities, including that the activities 
have not also been considered in the CRA evaluation of another 
institution.

Small Bank Asset Threshold Adjustments

    One question and answer is proposed that explains that the asset 
size thresholds for ``small bank'' and ``intermediate small bank'' will 
be adjusted annually based on changes to the Consumer Price Index. Any 
changes in the asset size thresholds will be published in the Federal 
Register.

Consideration of Prior-Period Qualified Investments

    A new question and answer is proposed that would apply to banks of 
all sizes. It explains how examiners evaluate qualified investments 
that were made during the prior evaluation period but that are still 
outstanding during the current evaluation period.

Revisions to Existing Guidance

    Three revisions to existing questions and answers are also 
proposed. The first proposed revision adds a bullet to the existing 
question and answer that provides examples of community development 
services (existing Sec. Sec.  ----.12(j) & 563e.12(i)-3). The new 
bullet clarifies that the provision of financial services to low- and 
moderate-income individuals through branches and other facilities 
located in low- and moderate-income areas is a community development 
service, unless the provision of such services has been considered in 
the evaluation of a bank's retail banking services under the service 
test.
    The second proposed revision is consistent with guidance the 
agencies provided in a letter responding to a question from a member of 
Congress. This revision would add another new bullet to the existing 
question and answer providing examples of community development 
services (existing Sec. Sec.  ----.12(j) & 563e.12(i)-3) that states 
that a community development service may include ``providing 
international remittances services that increase access to financial 
services by low- and moderate-income persons (for example, by offering 
reasonably priced international remittances services in connection with 
a low-cost account).''
    The last proposed revision would revise the existing question and 
answer that provides examples of qualified investments (existing 
Sec. Sec.  ----.12(s) & 563e.12(r)-4) to also include banks' 
investments in Rural Business Investment Companies (RBICs). The Rural 
Business Investment Program (RBIP), which is a joint initiative between 
the U.S. Small Business Administration and the U.S. Department

[[Page 68453]]

of Agriculture, is intended to promote economic development by 
financing small businesses located primarily in rural areas.

General Comments

    Public comment is invited on the new and revised questions and 
answers. Public comment is also invited on a continuing basis on any 
issues raised by the CRA and the Interagency Questions and Answers. If, 
after reading this proposed guidance and the existing Interagency 
Questions and Answers, banks, examiners, community organizations, or 
other interested parties have unanswered questions or comments about 
the agencies' community reinvestment regulations, they should submit 
them to the agencies. Staffs of the agencies will consider addressing 
such questions in future revisions to the Interagency Questions and 
Answers.

Solicitation of Comments Regarding the Use of ``Plain Language''

    Section 722 of the Gramm-Leach-Bliley Act of 1999, 12 U.S.C. 4809, 
requires the agencies to use ``plain language'' in all proposed and 
final rules published after January 1, 2000. Although this proposed 
guidance is not a proposed rule, comments are nevertheless invited on 
whether the proposed interagency questions and answers are stated 
clearly and effectively organized, and how the guidance might be 
revised to make it easier to read.

Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)

    The SBREFA requires an agency, for each rule for which it prepares 
a final regulatory flexibility analysis, to publish one or more 
compliance guides to help small entities understand how to comply with 
the rule.
    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
OCC and FDIC certified that their proposed CRA rule would not have a 
significant economic impact on a substantial number of small entities 
and invited comments on that determination. The Board did not so 
certify, and requested comments in several areas. See 70 FR 12148, 
12154 (March 11, 2005). In connection with the joint final rule, the 
FDIC and OCC certified that the joint final rule would not have a 
significant impact on a substantial number of small entities. In 
response to public comments it received, the Board prepared a final 
regulatory flexibility analysis and described how the final rule 
minimizes the economic impact on small entities by making the twelve 
affected state member banks eligible for the streamlined CRA process. 
See 70 FR at 44264-65 (August 2, 2005).
    In accordance with section 212 of the SBREFA and the agencies' 
continuing efforts to provide clear, understandable regulations, staffs 
of the agencies have compiled the Interagency Questions and Answers. 
The Interagency Questions and Answers serve the same purpose as the 
compliance guide described in the SBREFA by providing guidance on a 
variety of issues of particular concern to small banks.
    The text of the proposed Interagency Questions and Answers 
Regarding Community Reinvestment follows:

Sec.  ----.12(g)(4) Activities That Revitalize or Stabilize--

Sec.  ----.12(g)(4)-1 (proposed): Is the revised definition of 
community development, effective September 1, 2005, applicable to all 
banks or only to intermediate small banks?
    A1 (proposed): The revised definition of community development is 
applicable to all banks.
Sec.  ----.12(g)(4)-2 (proposed): When do activities that provide 
housing for middle-income and upper-income persons qualify for 
favorable consideration as community development activities when they 
help to revitalize or stabilize designated distressed or underserved 
middle-income nonmetropolitan geographies or designated disaster areas?
    A2 (proposed): A bank activity that provides housing, but not 
necessarily for low- or moderate-income individuals, may qualify as an 
activity that revitalizes or stabilizes a designated distressed 
nonmetropolitan middle-income geography or a designated disaster area 
if the housing helps to revitalize or stabilize the community by 
attracting and retaining businesses and residents, providing benefits 
to the entire community, including to low- and moderate-income 
individuals and neighborhoods. For example, a bank activity that 
provides housing for middle- or upper-income individuals in a 
designated distressed nonmetropolitan, middle-income geography or 
disaster area that is part of a bona fide plan to revitalize or 
stabilize the community by attracting a major new employer that will 
offer significant long-term employment opportunities, including to low- 
and moderate-income individuals, qualifies as community development. 
See existing Q&As Sec. Sec.  ----.12(h)(4) & 563e.12(g)(4)-1 and 
Sec. Sec.  ----.12(i) & 563e.12(h)-4.
    In underserved middle-income nonmetropolitan geographies, 
activities that provide housing for middle- and upper-income 
individuals may also qualify as activities that revitalize or stabilize 
such underserved areas if the activities also provide housing for low-
or moderate-income individuals. For example, a loan to build a mixed-
income housing development that provides housing for middle- and upper-
income individuals in an underserved, middle-income, nonmetropolitan 
geography would receive positive consideration if it also provides 
housing for low- or moderate-income individuals.

Sec.  ----.12(g)(4)(ii) Activities That Revitalize or Stabilize 
Designated Disaster Areas

Sec.  ----.12(g)(4)(ii)-1 (proposed): What is a ``designated disaster 
area''?
    A1 (proposed): A ``designated disaster area'' is a disaster area 
designated by federal or state government. Such designations include, 
for example, Major Disaster Declarations administered by the Federal 
Emergency Management Agency (https://www.fema.gov).
    When a disaster area's designation expires pursuant to the 
applicable law under which it was declared, the agencies will adopt a 
one-year ``lag period.'' This lag period will be in effect for the 
twelve months immediately following the expiration of the disaster area 
declaration. Revitalization or stabilization activities undertaken 
during the lag period will receive consideration as community 
development activities if they would have been considered to have a 
primary purpose of community development if the area in which they were 
located were still designated as a disaster area.
Sec.  ----.12(g)(4)(ii)-2 (proposed): How are revitalization activities 
in a designated disaster area considered?
    A2 (proposed): A bank's revitalization or stabilization activities 
in a designated disaster area will be evaluated in the same way such 
activities are evaluated in a low- or moderate-income area or in a 
nonmetropolitan middle-income distressed geography. Examiners will 
determine whether the activities have a primary purpose of community 
development by helping to attract and retain residents and businesses 
(including by providing jobs) or are part of a bona fide plan to 
revitalize or stabilize the geography. The agencies will consider all 
activities that revitalize or stabilize a designated disaster area,

[[Page 68454]]

but will give greater weight to those activities that are most 
responsive to community needs, including those of low- or moderate-
income individuals or neighborhoods. (Investments in entities that 
provide community services for, and direct loans and financial services 
provided to, individuals in designated disaster areas and to 
individuals who are displaced by disasters also receive consideration 
under the CRA (see, e.g., existing Q&As Sec.  ----.12(j) & 563e.12(i)-
3; Sec.  ----.12(s) & 563e.12(r)-4; Sec.  ----.22(b)(2) & (3)-4; Sec.  
----.22(b)(2) & (3)-5; and Sec.  ----.24(d)(3)-1)).

Sec.  ----.12(g)(4)(iii) Activities That Revitalize or Stablize 
Distressed or Underserved Nonmetropolitan Middle-Income Geographies

Sec.  ----.12(g)(4)(iii)-1 (proposed): What criteria are used to 
identify distressed or underserved nonmetropolitan, middle-income 
geographies?
    A1 (proposed): Eligible nonmetropolitan middle-income geographies 
are those designated by the agencies as being in distress or that could 
have difficulty meeting essential community needs (underserved). A 
particular geography could be designated as both distressed and 
underserved.
    A middle-income, nonmetropolitan geography will be designated as 
distressed if it is in a county that meets one or more of the following 
triggers: (1) An unemployment rate of at least 1.5 times the national 
average, (2) a poverty rate of 20 percent or more, or (3) a population 
loss of 10 percent or more between the previous and most recent 
decennial census or a net migration loss of five percent or more over 
the five-year period preceding the most recent census.
    A middle-income, nonmetropolitan geography will be designated as 
underserved if it meets criteria for population size, density, and 
dispersion that indicate the area's population is sufficiently small, 
thin, and distant from a population center that the tract is likely to 
have difficulty financing the fixed costs of meeting essential 
community needs. The agencies will use as the basis for these 
designations the ``urban influence codes,'' numbered ``7,'' ``10,'' 
``11,'' and ``12,'' maintained by the Economic Research Service of the 
United States Department of Agriculture.
    The agencies will publish data source information along with the 
list of eligible rural census tracts on the Federal Financial 
Institutions Examination Council Web site (https://www.ffiec.gov).
    Sec.  ----.12(g)(4)(iii)-2 (proposed): How often will the agencies 
update the list of designated distressed and underserved middle-income, 
nonmetropolitan geographies?
    A2 (proposed): The agencies will review and update the list 
annually. The list will be published on the Federal Financial 
Institutions Examination Council Web site (https://www.ffiec.gov).
    To the extent that changes to the designated census tracts occur, 
the agencies will adopt a one-year ``lag period.'' This lag period will 
be in effect for the twelve months immediately following the date when 
a census tract that was designated as distressed or underserved is 
removed from the designated list. Revitalization or stabilization 
activities undertaken during the lag period will receive consideration 
as community development activities if they would have been considered 
to have a primary purpose of community development if the census tract 
in which they were located were still designated as distressed or 
underserved.
    Sec.  ----.12(g)(4)(iii)-3 (proposed): How are ``revitalization or 
stabilization'' activities in middle-income, nonmetropolitan, 
distressed geographies and in middle-income, nonmetropolitan, 
underserved geographies evaluated?
    A3 (proposed): A bank's revitalization or stabilization activities 
in a middle-income, nonmetropolitan, distressed geography will be 
evaluated in the same way such activities are evaluated in a low- or 
moderate-income area. For activities in a middle-income, 
nonmetropolitan, distressed geography, examiners will determine whether 
the activities have a primary purpose of community development by 
helping to attract and retain residents and businesses (including by 
providing jobs) or are part of a bona fide plan to revitalize or 
stabilize the geography. The activities must have a long-term direct 
benefit to the entire community, including low- and moderate-income 
individuals and neighborhoods. See existing Q&As Sec. Sec.  --
--.12(h)(4) & 563e.12(g)(4)-1 and Sec. Sec.  ----.12(i) and 563e.12(h)-
4.
    In a middle-income, nonmetropolitan, underserved geography, 
however, bank activities that facilitate the construction, expansion, 
improvement, maintenance, or operation of essential infrastructure or 
facilities for health services, education, public safety, public 
services, industrial parks, or affordable housing generally will be 
considered to meet essential community needs and qualify for 
consideration as a community development activity, so long as the 
infrastructure, facility, or affordable housing serves low- and 
moderate-income individuals. Examples of the types of projects that 
meet essential community needs and serve low- or moderate-income 
individuals could be a new or expanded hospital that serves the entire 
county, including low- and moderate-income residents; an industrial 
park for businesses whose employees include low- or moderate-income 
individuals; a new or rehabilitated sewer line that serves community 
residents, including low- or moderate-income residents; a mixed-income 
housing development that includes affordable housing for low- and 
moderate-income families; or a renovated elementary school that serves 
children from the community, including children from low- and moderate-
income families. Other bank activities in the area, such as financing a 
project to build a sewer line spur to connect services to a housing 
development affordable only to middle- and upper-income residents, 
generally would not qualify for revitalization or stabilization 
consideration in geographies designated as underserved. However, if an 
underserved geography is also designated as distressed, such activities 
are considered to revitalize and stabilize the geography if the 
activity helps to attract and retain residents and businesses, or are 
part of a bona fide revitalization or stabilization plan as further 
explained in existing Q&A Sec. Sec.  ----.12(h)(4) & 563e.12(g)(4)-1.

Sec.  ----.12(i) Community Development Service

Sec.  ----.12(i)-3 (existing Q&A Sec.  ----.12(j) & 563e.12(i)-3 
proposed revision): What are examples of community development 
services?
    A3 (proposed revision): Examples of community development services 
include, but are not limited to, the following:
     Providing financial services to low- and moderate-income 
individuals through branches and other facilities located in low- and 
moderate-income areas, unless the provision of such services has been 
considered in the evaluation of a bank's retail banking services under 
Sec.  ----.24(d);
     Providing technical assistance on financial matters to 
nonprofit, tribal or government organizations serving low- and 
moderate-income housing or economic revitalization and development 
needs;
     Providing technical assistance on financial matters to 
small businesses or community development organizations, including 
organizations and individuals

[[Page 68455]]

who apply for loans or grants under the Federal Home Loan Banks' 
Affordable Housing Program;
     Lending employees to provide financial services for 
organizations facilitating affordable housing construction and 
rehabilitation or development of affordable housing;
     Providing credit counseling, home-buyer and home-
maintenance counseling, financial planning or other financial services 
education to promote community development and affordable housing;
     Establishing school savings programs and developing or 
teaching financial education curricula for low- or moderate-income 
individuals;
     Providing electronic benefits transfer and point of sale 
terminal systems to improve access to financial services, such as by 
decreasing costs, for low- or moderate-income individuals;
     Providing international remittances services that increase 
access to financial services by low- and moderate-income persons (for 
example, by offering reasonably priced international remittances 
services in connection with a low-cost account); and
     Providing other financial services with the primary 
purpose of community development, such as low-cost bank accounts, 
including ``Electronic Transfer Accounts'' provided pursuant to the 
Debt Collection Improvement Act of 1996, or free government check 
cashing that increases access to financial services for low- or 
moderate-income individuals.
    Examples of technical assistance activities that might be provided 
to community development organizations include:
     Serving on a loan review committee;
     Developing loan application and underwriting standards;
     Developing loan processing systems;
     Developing secondary market vehicles or programs;
     Assisting in marketing financial services, including 
development of advertising and promotions, publications, workshops and 
conferences;
     Furnishing financial services training for staff and 
management;
     Contributing accounting/bookkeeping services; and
     Assisting in fund raising, including soliciting or 
arranging investments.

Sec.  ----.12(t) Qualified Investment

    Sec.  ----.12(t)-1 (proposed): When evaluating a qualified 
investment, what consideration will be given for prior-period 
investments?
    A1 (proposed): When evaluating a bank's qualified investment 
record, examiners will consider investments that were made prior to the 
current examination, but that are still outstanding. Qualitative 
factors will affect the weighting given to both current period and 
outstanding prior-period qualified investments. For example, a prior-
period outstanding investment with a multi-year impact that addresses 
assessment area community development needs may receive more 
consideration than a current period investment of a comparable amount 
that is less responsive to area community development needs.
    Sec.  ----.12(t)-4 (existing Q&A Sec. Sec.  ----.12(s) & 
563e.12(r)-4 proposed revision): What are examples of qualified 
investments?
    A4 (proposed revision). Examples of qualified investments include, 
but are not limited to, investments, grants, deposits or shares in or 
to:
     Financial intermediaries (including, Community Development 
Financial Institutions (CDFIs), Community Development Corporations 
(CDCs), minority- and women-owned financial institutions, community 
loan funds, and low-income or community development credit unions) that 
primarily lend or facilitate lending in low- or moderate-income areas 
or to low- and moderate-income individuals in order to promote 
community development, such as a CDFI that promotes economic 
development on an Indian reservation;
     Organizations engaged in affordable housing rehabilitation 
and construction, including multifamily rental housing;
     Organizations, including for example, Small Business 
Investment Companies (SBICs), specialized SBICs, and Rural Business 
Investment Companies (RBICs), that promote economic development by 
financing small businesses;
     Facilities that promote community development in low- and 
moderate-income areas for low- and moderate-income individuals, such as 
youth programs, homeless centers, soup kitchens, health care 
facilities, battered women's centers, and alcohol and drug recovery 
centers;
     Projects eligible for low-income housing tax credits;
     State and municipal obligations, such as revenue bonds, 
that specifically support affordable housing or other community 
development;
     Not-for-profit organizations serving low- and moderate-
income housing or other community development needs, such as counseling 
for credit, home-ownership, home maintenance, and other financial 
services education; and
     Organizations supporting activities essential to the 
capacity of low- and moderate-income individuals or geographies to 
utilize credit or to sustain economic development, such as, for 
example, day care operations and job training programs that enable 
people to work.

Sec.  ----.12(u)(2): Small Bank Adjustment

Sec.  ----.12(u)(2)-1 (proposed): How often will the asset size 
thresholds for small banks and intermediate small banks be changed, and 
how will these adjustments be communicated?
    A1 (proposed): The asset size thresholds for ``small bank'' and 
``intermediate small bank'' will be adjusted annually based on changes 
to the Consumer Price Index. More specifically, the dollar thresholds 
will be adjusted annually based on the year-to-year change in the 
average of the Consumer Price Index for Urban Wage Earners and Clerical 
Workers, not seasonally adjusted for each twelve-month period ending in 
November, with rounding to the nearest million. Any changes in the 
asset size thresholds will be published in the Federal Register.

Sec.  ----.26 Small Bank Performance Standards

Sec.  ----.26-1 (proposed): When evaluating a small or intermediate 
small bank's performance, will examiners consider, at the institution's 
request, retail and community development loans, qualified investments, 
or community development services originated or purchased by 
affiliates?
    A1 (proposed): Yes. However, a small institution that elects to 
have examiners consider affiliate activities must maintain sufficient 
information that the examiners may evaluate these activities under the 
appropriate performance criteria and ensure that the activities are not 
claimed by another institution. The constraints applicable to affiliate 
activities claimed by large institutions also apply to small and 
intermediate small institutions. See existing Q&A Sec.  ----.22(c)(2) 
and related guidance provided to large institutions regarding affiliate 
activities. Examiners will not include affiliate lending in calculating 
the percentage of loans and, as appropriate, other lending-related 
activities located in a bank's assessment area.

[[Page 68456]]

Sec.  ----.26(c) Intermediate Small Bank Community Development Test

Sec.  ----.26(c)-1 (proposed): How will the community development test 
be applied flexibly for intermediate small banks?
    A1 (proposed): Generally, intermediate small banks engage in a 
combination of community development loans, qualified investments, and 
community development services. A bank may not simply ignore one or 
more of these categories of community development, nor do the 
regulations prescribe a required threshold for community development 
loans, qualified investments, and community development services. 
Instead, based on the bank's assessment of community development needs 
in its assessment area(s), it may engage in different categories of 
community development activities that are responsive to those needs and 
consistent with the bank's capacity.
    An intermediate small bank has the flexibility to allocate its 
resources among community development loans, qualified investments, and 
community development services in amounts that it reasonably determines 
are most responsive to community development needs and opportunities. 
Appropriate levels of each of these activities would depend on the 
capacity and business strategy of the bank, community needs, and number 
and types of opportunities for community development.

Sec.  ----.26(c)(3) Community Development Services under Intermediate 
Small Bank Community Development Test

Sec.  ----.26(c)(3)-1 (proposed): What will examiners consider when 
evaluating the provision of community development services by an 
intermediate small bank?
    A1 (proposed): Examiners will consider not only the types of 
services provided to benefit low- and moderate-income individuals, such 
as low-cost bank checking accounts and low-cost remittance services, 
but also the provision and availability of services to low- and 
moderate-income individuals, including through branches and other 
facilities located in low- and moderate-income areas.

Sec.  ----.26(c)(4) Responsiveness to Community Development Needs under 
Intermediate Small Bank Community Development Test

Sec.  ----.26(c)(4)-1 (proposed): When evaluating an Intermediate Small 
Bank's community development record, what will examiners consider when 
reviewing the responsiveness of community development lending, 
qualified investments, and community development services to the 
community development needs of the area?
    A1 (proposed): When evaluating an Intermediate Small Bank's 
community development record, examiners will consider not only 
quantitative measures of performance, such as the number and amount of 
community development loans, qualified investments, and community 
development services, but also qualitative aspects of performance. In 
particular, examiners will evaluate the responsiveness of the bank's 
community development activities in light of the bank's capacity, 
business strategy, the needs of the community, and the number and types 
of opportunities for each type of community development activity (its 
performance context). Examiners also will consider the results of any 
assessment by the institution of community development needs, and how 
the bank's activities respond to those needs.
    An evaluation of the degree of responsiveness considers the 
following factors: the volume, mix, and qualitative aspects of 
community development loans, qualified investments, and community 
development services. Consideration of the qualitative aspects of 
performance recognizes that community development activities sometimes 
require special expertise or effort on the part of the institution or 
provide a benefit to the community that would not otherwise be made 
available. (However, ``innovativeness'' and ``complexity,'' factors 
examiners consider when evaluating a large bank under the lending, 
investment, and service tests, are not criteria in the intermediate 
small banks' community development test.) In some cases, a smaller loan 
may have more qualitative benefit to a community than a larger loan. 
Activities are considered particularly responsive to community 
development needs if they benefit low- and moderate-income individuals 
in low- or moderate-income geographies, designated disaster areas, or 
distressed or underserved middle-income nonmetropolitan geographies. 
Activities are also considered particularly responsive to community 
development needs if they benefit low- or moderate-income geographies.
    This concludes the text of the proposed Interagency Questions and 
Answers Regarding Community Reinvestment.

    Dated: October 31, 2005.
John C. Dugan,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, November 4, 2005.
Jennifer J. Johnson,
Secretary of the Board.
    Dated at Washington, DC, this third day of November, 2005.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 05-22468 Filed 11-9-05; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P